Rust Belt and Sun Belt: America's Changing Economic Map

How economic activity and population have shifted from the industrial Midwest and Northeast to the South and West, and why some places thrive while others struggle.

The geography of the U.S. economy has changed dramatically over the past half century. Population and jobs have moved from the old industrial heartland toward the South and West, and a few large cities have pulled ahead.

The Rust Belt

The Rust Belt refers to parts of the Midwest and Northeast, such as Michigan, Ohio and Pennsylvania, once dominated by steel, cars and heavy industry. From the 1970s, factory closures, automation and foreign competition led to job losses. Cities like Detroit lost large shares of their populations. Detroit filed for bankruptcy in 2013, the largest municipal bankruptcy in U.S. history.

The Sun Belt

The Sun Belt stretches across the South and Southwest, including Texas, Florida, Arizona and Georgia. It has grown rapidly because of:

Lower costs, especially housing.
Lower taxes in some states, such as Texas and Florida, which have no state income tax.
Air conditioning, which made hot climates comfortable to live and work in.
Business-friendly regulations and new industries.

Texas has become one of the largest state economies, with energy, technology and manufacturing.

Superstar cities

Some cities, such as San Francisco, Seattle, Boston and New York, became superstar cities, attracting highly educated workers and high-paying industries like technology and finance. Wages are high, but so are housing costs. Economist Enrico Moretti described a “great divergence” between such cities and places that lost their industrial base.

Why places diverge

Agglomeration: skilled workers and firms cluster together, becoming more productive.
Housing supply: restrictive zoning in expensive cities limits how many people can move there, slowing the flow of workers to high-productivity places.
Declining mobility: people move less than in the past.

Moving for work, blocked by rent

A worker in a struggling Rust Belt town could earn much more in San Francisco. But rent there would consume most of the higher pay. So he stays, even though moving would raise national productivity. Economists Chang-Tai Hsieh and Enrico Moretti estimated that housing restrictions in high-productivity cities significantly lowered U.S. growth.

Thinking decline is permanent

Some Rust Belt cities, such as Pittsburgh, reinvented themselves through universities, health care and technology. Places can recover, though it often takes decades and new industries.

Key takeaways

The Rust Belt lost industrial jobs from the 1970s; Detroit went bankrupt in 2013.
The Sun Belt grew due to lower costs, taxes and air conditioning.
Superstar cities attract high-paying industries but have very high housing costs.
Housing restrictions and declining mobility contribute to regional divergence.