The Local Economic Impacts of Military Personnel Contractions in the 1990s

This paper studies the local economic impacts of the U.S. military personnel contractions between 1988 and 2000. I propose a novel empirical strategy combining synthetic control and instrumental variables methods, and jointly estimate the causal effects on the equilibrium quantities and prices of local labor, housing, and product markets. Military personnel contractions substantially reduced local civilian employment, but mainly through reductions in in-migration, local population adjusted quickly, resulting in small changes in wages and large declines in rental prices. Relating these empirical findings to a simple spatial equilibrium model, I show that the welfare cost on workers is small while that on landowners is sizable.