Essays on the Economics of People and Places by Bryan A. Stuart A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy (Economics) in The University of Michigan 2017 Doctoral Committee: Professor Martha J. Bailey, Chair Assistant Professor Dominick G. Bartelme Professor John Bound Professor John E. DiNardo Bryan A. Stuart [email protected] ORCID ID 0000-0001-7268-8623 c Bryan A. Stuart 2017 For Laura ii ACKNOWLEDGEMENTS I owe debts of gratitude to many people. I am especially grateful for the time and energy of the members of my dissertation committee: Martha Bailey, Dominick Bartelme, John Bound, and John DiNardo. Martha Bailey deserves special thanks for her invaluable feedback and encouragement. Having her chair my dissertation committee ranks among one of the best decisions I made during graduate school. John Bound and John DiNardo provided insightful feedback, and their unique approaches to research have left a lasting mark. Dominick Bartelme provided a fresh perspective and much appreciated encouragement. These individuals substantially improved the research in my dissertation. I also had the good fortune to learn a tremendous amount from my co-authors: David Albouy, Martha Bailey, John DiNardo, Jeffrey Hoopes, Patrick Langetieg, Stefan Nagel, Daniel Reck, Joel Slemrod, Isaac Sorkin, and especially Evan Taylor. Beyond my committee, I am grateful to several other faculty members at the University of Michigan who provided generous feedback and contributed to a rich learning environment. These individuals include David Albouy, Hoyt Bleakley, Charlie Brown, James Hines, Michael Mueller- Smith, Paul Rhode, Matthew Shapiro, Joel Slemrod, Jeffrey Smith, Mel Stephens, and Justin Wolfers. My graduate school career was also enriched by numerous classmates, including Jacob Bastian, Eric Chyn, Austin Davis, Andrew Goodman-Bacon, Alan Griffith, Morgan Henderson, Sarah Johnston, Isaac Sorkin, Christopher Sullivan, Evan Taylor, and Mike Zabek. I also appreci- ate valuable feedback from Alexander Bartik, Dan Black, Leah Boustan, Varanya Chaubey, Daniel Nagin, Seth Richards-Shubik, Seth Sanders, Gary Solon, Lowell Taylor, and numerous seminar participants. I thank J. Clint Carter and Margaret Levenstein for help accessing confidential Cen- iii sus Bureau data, and Seth Sanders and Jim Vaupel for facilitating access to the Duke/SSA Medicare data. My research was supported in part by an NICHD training grant (T32 HD007339) and an NICHD center grant (R24 HD041028) to the Population Studies Center at the University of Michi- gan. These grants provided valuable time and resources, and I appreciate the support from all of the PSC staff, including Jennifer Garrett, Heather MacFarland, Lisa Neidert, Miriam Rahl, and Ricardo Rodriguiz. I also received valuable financial support from the Michigan Institute for Teaching and Research in Economics, Rackham Graduate School, Institute for Social Research, and Tokyo Foundation. My family has long encouraged and supported my academic pursuits, and their support has been instrumental in my personal and professional life. Most importantly, I thank my loving wife, Laura, for her constant encouragement and support. Words cannot capture the appreciation and joy that I feel to have her as my partner in life. iv TABLE OF CONTENTS DEDICATION ::::::::::::::::::::::::::::::::::::::: ii ACKNOWLEDGEMENTS :::::::::::::::::::::::::::::::: iii LIST OF TABLES ::::::::::::::::::::::::::::::::::::: vii LIST OF FIGURES :::::::::::::::::::::::::::::::::::: xi LIST OF APPENDICES :::::::::::::::::::::::::::::::::: xiv ABSTRACT ::::::::::::::::::::::::::::::::::::::::: xv CHAPTER I. The Long-Run Effects of Recessions on Education and Income .........1 1.1 Introduction . .1 1.2 Background: The 1980-1982 Recession . .5 1.2.1 Evidence of a Sharp, Persistent Decrease in Local Economic Activity . .6 1.2.2 Pre-Existing Industrial Specialization and Recession Severity .8 1.2.3 The Evolution of Median Family Income from 1950-2000 . 10 1.2.4 Additional Results on the Cost of Housing and Government Expenditures . 11 1.3 Possible Long-Run Effects of a Recession on Education and Income . 12 1.4 Data and Empirical Strategy . 14 1.4.1 Data on Long-Run Outcomes and County of Birth . 14 1.4.2 Difference-in-Differences Specification using Pre-Existing In- dustrial Structure and the 1980-1982 Recession . 15 1.4.3 Addressing Measurement Error in Recession Exposure . 17 1.4.4 Potential Threats to Empirical Strategy . 19 1.5 The Long-Run Effects of the Recession on Education . 20 1.5.1 Heterogeneity by Sex and Race . 24 1.5.2 Heterogeneity by Features of Birth State and County . 25 1.6 The Long-Run Effects of the Recession on Income, Wages, and Poverty . 27 v 1.7 Conclusion: The Long-Run Effects of Recessions . 31 II. Social Interactions and Location Decisions: Evidence from U.S. Mass Migration 48 2.1 Introduction . 48 2.2 Historical Background on Mass Migration Episodes . 51 2.3 Estimating Social Interactions in Location Decisions . 54 2.3.1 Data on Location Decisions . 54 2.3.2 Econometric Model: The Social Interactions Index . 55 2.3.3 Estimating the Social Interactions Index . 60 2.3.4 An Extension to Assess the Validity of Our Empirical Strategy . 63 2.4 Results: Social Interactions in Location Decisions . 64 2.4.1 Social Interactions Index Estimates . 64 2.4.2 Addressing Measurement Error due to Incomplete Migration Data . 69 2.4.3 The Role of Family Migration . 70 2.4.4 Social Interactions and Economic Characteristics of Receiving and Sending Locations . 71 2.4.5 Connecting the Social Interactions Index to a Behavioral Model 74 2.5 Conclusion . 76 III. The Effect of Social Connectedness on Crime: Evidence from the Great Mi- gration ........................................ 93 3.1 Introduction . 93 3.2 Historical Background on the Great Migration . 97 3.3 A Simple Model of Crime and Social Connectedness . 99 3.3.1 Individual Crime Rates . 100 3.3.2 City-Level Crime Rates . 102 3.4 Data and Empirical Strategy . 105 3.4.1 Data on Crime, Social Connectedness, and Control Variables . 105 3.4.2 Estimating the Effect of Social Connectedness on Crime . 106 3.5 The Effect of Social Connectedness on Crime . 111 3.5.1 Effects on City-Level Crime Rates . 111 3.5.2 Effects over Time . 113 3.5.3 Effects by Age and Race of Offender over Time . 115 3.5.4 Threats to Empirical Strategy and Additional Robustness Checks 115 3.6 Understanding the Role of Peer Effects . 117 3.7 Conclusion . 119 APPENDICES ::::::::::::::::::::::::::::::::::::::: 136 BIBLIOGRAPHY ::::::::::::::::::::::::::::::::::::: 270 vi LIST OF TABLES Table 1.1 Aggregate Employment Changes from 1978-1982, by Industry . 34 1.2 The Long-Run Effects of the 1980-1982 Recession on Educational Attainment . 35 1.3 The Long-Run Effects of the 1980-1982 Recession on Educational Attainment, Heterogeneity by Sex and Race . 36 1.4 The Long-Run Effects of the 1980-1982 Recession on Four-Year College Degree Attainment, Heterogeneity by Features of Birth State and County . 37 1.5 The Long-Run Effects of the 1980-1982 Recession on Income, Wages, and Poverty 38 1.6 The Long-Run Effects of the 1980-1982 Recession on Income and Wages, Con- ditional on Educational Attainment and Commuting Zone of Residence . 39 1.7 Back of the Envelope Calculations of the Aggregate Long-Run Effects of the 1980-1982 Recession . 40 2.1 Location at Old Age, 1916-1936 Cohorts . 78 2.2 Extreme Examples of Correlated Location Decisions, Southern Blacks and Great Plains Whites . 79 2.3 Average Social Interactions Index Estimates, by Birth State . 80 2.4 Average Social Interactions Index Estimates, With and Without Controlling for Observed Differences across Birth Towns . 81 2.5 Average Social Interactions Index Estimates, by Size of Birth Town and Destination 82 2.6 Average Social Interactions Index Estimates, by Region . 83 2.7 Social Interactions Index Estimates and Destination County Characteristics, Black Moves out of South . 84 2.8 Social Interactions Index Estimates and Birth County Characteristics, Black Moves out of South . 85 2.9 Estimated Share of Migrants That Chose Their Destination Because of Social Interactions . 86 3.1 The Relationship between Social Connectedness and 1911-1916 Homicide Rates 121 3.2 Five-Year Migration Rates, Southern Black Migrants Living Outside of the South 122 3.3 The Relationship between Social Connectedness and City Covariates, 1960-2000 123 3.4 The Effect of Social Connectedness on Crime, 1960-2009 . 124 3.5 The Effect of Social Connectedness on Murder, 1960-2009, Robustness . 125 3.6 The Effect of Social Connectedness on Crime, 1960-2009, by Percent Black Tercile126 3.7 The Effect of Social Connectedness on Crime, 1960-2009, by Decade . 127 vii 3.8 The Effect of Social Connectedness on Murder, 1980-2009, by Age-Race Group and Decade . 128 3.9 The Role of Peer Effects in the Effect of Social Connectedness on Crime . 129 A.1 Approximate Replication of Tables 3 and 4 of Feyrer, Sacerdote and Stern (2007) 159 A.2 Comparison to Feyrer, Sacerdote and Stern (2007): Results from Different De- pendent Variables with FSS Specification . 160 A.3 Comparison to Feyrer, Sacerdote and Stern (2007): Results from Different Shock Measures and Different Samples . 161 A.4 The Persistence of the 1980-1982 Recession for Earnings per Capita, OLS and 2SLS Estimates . 162 A.5 The Persistence of the 1980-1982 Recession for Employment-Population Ratio, OLS and 2SLS Estimates . 163 A.6 The Persistence of the 1980-1982 Recession, OLS and 2SLS Estimates, At Dif- ferent Horizons . 164 A.7 The Effect of the 1980-1982 Recession on Log Median Family Income, Rents, and House Values, 2SLS Estimates . 165 A.8 The Effects of the 1980-1982 Recession on Local Government Expenditures, 2SLS Estimates . 166 A.9 The Effects of the 1980-1982 Recession on Local Government Revenues, 2SLS Estimates . 167 A.10 Sample Construction and Match Statistics . 168 A.11 Correlation of County-Level Shocks Across Recessions .