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When Coal Leaves Town: Can Local Governments Help?

Winkler, Hernan (2021): When Coal Leaves Town: Can Local Governments Help?

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Abstract

This article provides new evidence on the impacts of coal mine closures on local labor markets and the role of mitigation policies. Using data on 285 Polish municipalities from 1995 to 2016, the results show that the employment rates of men falls by 3 and 8 percentage points in the short- and long-term, respectively, in municipalities that experience a mine closure. Mining communes –having greater privileges over revenue collection– receive more intergovernmental transfers and increase their expenditures on family benefits during a coal mine closure. These policies are associated with smaller job losses in the short-term but with a sluggish recovery in the long-term. Given the low levels of labor mobility and wage flexibility that characterize the Polish labor market, the findings are consistent with local fiscal policies cushioning the negative impacts of coal mine closures on the demand for local goods and services in the short-term. In contrast, they may contribute to raise the reservation wage and thereby to slow down employment growth in the long-term.

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