In virtually every developed nation, there exist cities that have lost their economic rationale for existence. The most successful of these will reinvent themselves, as have many former industrial cities now reborn as centers of commerce and service industries. Others become centers of relative deprivation, islands of poverty in a sea of affluence. These cities often depopulate rapidly, but in most cases some citizens remain, held in place by strong family or cultural ties, by their inability to finance moving costs, or by programmes of redistribution, targeted toward themselves or their region. These redistributive programmes are in many cases quite costly, and are frequently criticised as an ineffective means of improving the living standards of those who live in regions of concentrated poverty.
Should governments help residents of depressed regions move towards more prosperous areas? This is an empirical question. Relocation could benefit relocated individuals by placing them in closer proximity to employment opportunities. Relocation might also entail significant costs, however, particularly for groups that rely heavily on social networks to find jobs.
There is little evidence for or against the effectiveness of large-scale relocation incentives as a means of improving the welfare of those who live in areas of concentrated poverty. While large-scale relocation incentives are not unprecedented (consider, for example, the American Homestead Act of 1862, which offered settlers free land in the under-populated West), few studies have been done.
As recently as early 2005, the Gulf Coast region of Louisiana and Mississippi certainly qualified as a region struggling to redefine itself in the wake of economic change. New Orleans, the largest city in the region, was a river port that had never quite recovered from the ascendance of rail transport in the mid-19th century. Unlike many other port towns, New Orleans never developed a strong manufacturing base. Moreover, the postindustrial growth of “knowledge industries” related to computers and biotechnology largely left the region behind. The economy of the entire gulf region was based largely on tourism, trading on the region's rich cultural history and proximity to sandy beaches. Jobs in tourism-related industries were for the most part poorly paid, and the region as a whole suffered from a low labour force participation rate. Particularly when compared to the rest of the American “Sun Belt,” this region was noteworthy for its low rate of growth in employment and population.
In August 2005, residents of this region unwittingly participated in what may be the closest equivalent to a large-scale relocation experiment ever conducted in peacetime. In the wake of Hurricane Katrina, hundreds of thousands of individuals – many of them poor, a disproportionate number African-American – found themselves with little prospect of returning to their homes in any short period of time. Even now, nearly two years after the storm, the population of New Orleans hovers around half of what it was in July 2005.
The Katrina evacuees relocated to many different cities across the United States. Nearby inland cities, such as Houston and Dallas, Texas, saw the largest inflows, but small numbers of evacuees moved to even the most remote corners of the country. Most of these destination cities had labour markets considerably more robust than that in New Orleans and its environs. Within a few months after the evacuation, newspaper articles began to appear, chronicling some evacuees' successful transition to their new homes in Atlanta, Las Vegas, or other bustling American cities. To the average reader, it may have seemed that relocation had been a great boon to the typical evacuee.
At the same time these articles were appearing, the United States Bureau of Labor Statistics and Census Bureau were collecting more systematic evidence on a few hundred evacuees sampled as part of the Current Population Survey. The CPS follows sample respondents over a period of up to sixteen months, permitting a brief longitudinal analysis. It has been used in countless economic studies of the American labour market. Beginning in November 2005, the monthly survey was modified to enquire whether respondents were Katrina evacuees, and if so, whether they had returned to their pre-Katrina address. The survey continued to ask these questions through October 2006.
The survey data obtained through the CPS paints a portrait much bleaker than some press coverage. Evacuees, on the whole, suffered a serious negative shock to their labour supply and earnings. These effects were concentrated in the subset of evacuees who failed to promptly return to the greater New Orleans area after the storm. Moreover, for this group of long-term evacuees, there are little to no signs of improvement over the twelve-month period from November 2005 to October 2006. Some evacuees may be doing quite well, but most are doing even worse than they had been in the New Orleans area prior to the hurricane. The fortunes of long-term evacuees appear to be almost completely unrelated to the characteristics of the metropolitan areas where they relocated.
Few may have genuinely believed that individuals, particularly poor residents of depressed urban areas, could land in a new city, dust themselves off, and productively join the workforce. But the evidence of little to no progress, even fifteen months after initial evacuation, starkly reveals the importance of local ties and information networks in the employment outcomes of people like the Katrina evacuees.
Hurricane Katrina turned a spotlight on the problem of concentrated urban poverty in the United States, inspiring a wide-ranging debate about the role of government in insuring its citizens against natural and economic disasters. The CPS data reveal, perhaps surprisingly, that government transfer programmes blunted a great deal of the negative impact of evacuation on evacuees, at least in the first few months after the storm. Although evacuees reported a significant loss of labour market income in calendar year 2005, the impact of evacuation on total income in that year was smaller in magnitude and statistically insignificant. It remains to be seen whether government transfer programmes, which are designed to offer temporary aid, played a similar role in subsequent time periods. Of course, the availability of transfer funds also serves as a potential explanation for the evacuees' poor showing in the labour market.
What can the world learn from the experiences of Hurricane Katrina evacuees? As indicated in other recent research carefully examining the impact of residential location on employment, moving a poor, undereducated citizen from a declining urban area to the middle of a vibrant economy is not likely to be a quick, cheap way to find him or her a job.
While participants in a voluntary relocation programme would almost certainly be exposed to less personal trauma than Katrina evacuees, the survival instinct alone appears to be insufficient to guarantee success. Particularly in nations with social welfare systems more generous than the American model, the result of any such programme seems quite likely to increase, rather than assuage, drains on the public budget in the short-to-intermediate term.
For further information and analysis see Vigdor, Jacob L. “The Katrina Effect: Was There a Bright Side to the Evacuation of Greater New Orleans?” National Bureau of Economic Research Working Paper #13022, April 2007.