Local ability to "rewire" and socioeconomic performance: Evidence from US counties before and after the Great Recession

We examine the effects of three broad groups of socioeconomic factors on poverty, income and employment growth in US counties before and after the Great Recession. The factors reflect different aspects of county economic structure, social/demographic attributes, and natural amenities, as well as position within the urban-rural hierarchy. Our main focus is on the dynamic adjustments within local labor markets, which we approximate with novel measures that capture the ability of a county to rewire by reallocating employees from shrinking to expanding sectors. We use cross-sectional, first-difference and quantile regressions and find that county industrial composition (if it is fast- or slow-growing) and the rewiring ability are of increasing importance. Some of our most policy-relevant findings come from the quantile analysis of differenced job growth. For counties that are lower at the distribution of the response function, the labor-market measures of flexibility emerge as important predictors of growth, suggesting that removing barriers to flow of resources within lagging economies might be a viable policy option.