Place-Based Industrial Investment in WWII
Introduction
Garin (2025) studies local industrial investment that took place during World War II. To rapidly increase production of military supplies, the US government financed industrial plants across the country that were built and run by private firms but owned by the government. These plants were often located in regions that did not previously produce goods in that industry and therefore relied on unexperienced workers, who were trained on-site.
The paper defines treated counties as those where a large government-funded plant was built. Control counties are those with similar population counts as the treated-counties that did not receive government-built plants and are not adjacent to treated counties. The paper compares long-run earnings outcomes between those born in the treatment and control counties for those born in the years leading up to the war (1922-1940).
The paper finds on average that workers born in treatment counties earn an additional $1,200 (2020 dollars) annually, however these gains are driven primarily by those whose parents were at the bottom of the income distribution before the war. Evidence suggests the plant construction gave workers access to higher paying semi-skilled occupations.
Garin (2025) constructs an MVPF for the construction of government industrial plants during World War II, focusing specifically on the impacts of plants on local residents born 1922-1940.
MVPF = 0.9
Net Cost
Garin (2025) calculates the net cost as the upfront cost to build the plants, the amount recouped from selling the plants to the private sector, as well as the fiscal externality of tax revenues on the increased earnings made by the cohort of treated workers.
The paper estimates that $60 billion was spent building the 90 large plants in treatment counties, and that 40% percent of that ($24 billion) was recovered when the firms were sold to the private sector.
In addition, the paper finds that workers in treated counties on average made an additional $1200 per year. Garin (2025) assumes that workers have a 40-year career and that the annual earnings increase will persist over each of these years. The paper also assumes a 3 percent discount rate. As there were 1.2 million treated workers, this leads to a net present value of $34 billion in additional earnings. Assuming that workers pay 20% of their additional earnings in taxes leads to a fiscal externality of $6.8 billion. Thus the net government cost is $60 – $24 – $6.8 = $29.2 billion.
Willingness to Pay
The paper constructs an MVPF estimate under the assumption that the only beneficiaries of the policy are those born within 1922-1940 in treatment counties. The calculations of willingness-to-pay excludes local spillovers to adjacent regions, as well as any benefits that could accrue to older or younger cohorts. As described above, the paper calculates $34 billion in additional earnings made over the career and summed across 1.2 million workers. Assuming that 20% is paid in taxes, the willingness to pay is 0.8*$34 billion = $27.2 billion.
MVPF Summary
Garin (2025) finds a willingness-to-pay of $27.2 billion and a net cost of $29.2 billion which implies an MVPF of 0.93. The paper notes that this is likely a lower bound as it does not incorporate any estimates of the effects on younger or older cohorts who might have experienced earnings gains as well.
References
Garin, Andrew (2025). “Do Place-Based Industrial Interventions Help “Left-Behind” Workers? Lessons from WWII and Beyond.” NBER WP 33418. https://www.nber.org/papers/w33418.
Policy Features
- Category
- Taxes
- Sub-Category
- Local Taxes/Subsidies
- Beneficiary Type(s)
- Adults
- Country of Implementation
- United States
- Year of Implementation
- 1940
- Empirical Method
- Matched Controls
- Research Type
- Primary
- Peer Reviewed
- No
- MVPF Publication Link
- www.nber.org/papers/w33418