A professor of economic geography and regional planning in MIT’s Department of Urban Studies and Planning, Amy Glasmeier has spent decades exploring the root causes of income inequality and of regional disparities in economic opportunity. She is widely known for developing the Living Wage Calculator, which analyzes the minimum income required to pay for basic living expenses. Launched in 2003, the calculator today is widely used by companies and regional governments to set wages that meet the needs of local populations. Glasmeier has also published several books, including An Atlas of Poverty in America: One Nation, Pulling Apart 1960–2003 (Routledge Press, 2005). Spectrum asked her to explain how her research is helping us better understand the sources of poverty, and of wealth.

What has your research in economic geography revealed about how where people live affects their chances for economic advancement?

AG: Economic geographers study how economic activities, processes, and outcomes vary by location. My area of expertise is the underlying economic causes of such variation in economic opportunity—for example, how a region rich in natural resources, like central Appalachia, remains among the nation’s poorest.

I spent 25 years advising the Appalachian Regional Commission, a governmental economic development agency, and can say the explanation comes down to four core factors: exploitative industries, geographic remoteness, failed institutions, and political corruption. The remoteness of Appalachia meant there was a lack of markets and population centers, which in turn meant few job-generating alternatives to coal.

While the single-industry economy produced low pay and poor working conditions, the absence of information about opportunities beyond the region’s rugged mountains discouraged people from moving. In addition, the coal industry was in cahoots with Appalachia’s political leadership, scaring away other industries that might have created alternative opportunities.

Stories like that of Appalachia still resonate today. Countries in Africa that are rich in resources, including Nigeria, Sierra Leone, and Tanzania, suffer a similar fate.

How have the data and analysis you’ve gathered from the Living Wage Calculator helped address economic inequality?

AG: The calculator was created when I was working on a Ford Foundation grant revisiting poverty policy. We noticed that from 1990–2000 a number of counties that had crawled out of poverty had fallen back in. It turned out many of these places had lost major sources of employment. We knew that recovery would not come easily, so we built the tool to demonstrate that cost of living adjustments can lag behind job decline. Now we can look at data from areas such as Appalachia and see that this is exactly what happens.

Interestingly, while we designed the tool for individuals to understand their personal cost of living, today’s users also include groups— ranging from unions to cities to religious organizations—interested in improving employee compensation. Employers like IKEA, for example, use the tool to set entry-level wages. Their motivation is fairness and reward for consistency in employee performance.

The City of Dallas uses the tool to set the wage rates contractors must pay their workers as part of its bid process. This has worked so well, improving both productivity and service, that the city has actually offered full-time jobs to former contract workers.

Can economic geography help us understand what drives wealth as well?

AG: Absolutely. The theories and tools we use are central to understanding the development process in booming areas. Consider what’s been happening within the environs of MIT and Kendall Square. Geographic concepts help explain why, given the rising cost of real estate in the area, firms continue to agglomerate here.

The simple answer is there are economic and noneconomic benefits to being close to companies in the same or similar industries. These include being able to access a diverse and highly skilled source of quality workers and something intangible but essential: access to the knowledge people learn on on the job.

One comment

  1. David Harold Chester

    Poverty is caused by the failure to properly share opportunity, particularly the right for access to land. When land is withheld unused for purposes of speculation in its rising value, not only do surrounding sites become more costly to rent or lease, but less entrepreneurs or work people can afford them. Then less work results and what does is at greater costs so prices rise, demand falls and jobs are less easy to find. And it is this lack of opportunity which causes poverty.

    By taxing land values (LVT) this situation can be reversed and eliminated.

    Socially Just Taxation and Its Effects (17 listed)

    Our present complicated system for taxation is unfair and has many faults. The biggest problem is to arrange it on a socially just basis. Many companies employ their workers in various ways and pay them diversely. Since these companies are registered in different countries for a number of categories, the determination the criterion for a just tax system becomes impossible, particularly if based on a fair measure of human work-activity. So why try when there is a better means available, which is really a true and socially just method?

    Adam Smith (“Wealth of Nations”, 1776) says that land is one of the 3 factors of production (the other 2 being labor and durable capital goods). The usefulness of land is in the price that tenants pay as rent, for access rights to the particular site in question. Land is often considered as being a form of capital, since it is traded similarly to other durable capital goods items. However it is not actually man-made, so rightly it does not fall within this category. The land was originally a gift of nature (if not of God) for which all people should be free to share in its use. But its site-value greatly depends on location and is related to the community density in that region, as well as the natural resources such as rivers, minerals, animals or plants of specific use or beauty, when or after it is possible to reach them. Consequently, most of the land value is created by man within his society and therefore its advantage should logically and ethically be returned to the community for its general use, as explained by Martin Adams (in “LAND”, 2015).

    However, due to our existing laws, land is owned and formally registered and its value is traded, even though it can’t be moved to another place, like other kinds of capital goods. This right of ownership gives the landlord a big advantage over the rest of the community because he determines how it may be used, or if it is to be held out of use, until the city grows and the site becomes more valuable. Thus speculation in land values is encouraged by the law, in treating a site of land as personal or private property—as if it were an item of capital goods, although it is not (Mason Gaffney and Fred Harrison: “The Corruption of Economics”, 2005).

    Regarding taxation and local community spending, the municipal taxes we pay are partly used for improving the infrastructure. This means that the land becomes more useful and valuable without the landlord doing anything—he/she will always benefit from our present tax regime. This also applies when the status of unused land is upgraded and it becomes fit for community development. Then when this news is leaked, after landlords and banks corruptly pay for this information, speculation in land values is rife. There are many advantages if the land values were taxed instead of the many different kinds of production-based activities such as earnings, purchases, capital gains, home and foreign company investments, etc., (with all their regulations, complications and loop-holes). The only people due to lose from this are those who exploit the growing values of the land over the past years, when “mere” land ownership confers a financial benefit, without the owner doing a scrap of work. Consequently, for a truly socially just kind of taxation to apply there can only be one method–Land-Value Taxation.

    Consider how land becomes valuable. New settlers in a region begin to specialize and this improves their efficiency in producing specific goods. The central land is the most valuable due to easy availability and least transport needed. This distribution in land values is created by the community and (after an initial start), not by the natural resources. As the city expands, speculators in land values will deliberately hold potentially useful sites out of use, until planning and development have permitted their values to grow. Meanwhile there is fierce competition for access to the most suitable sites for housing, agriculture and manufacturing industries. The limited availability of useful land means that the high rents paid by tenants make their residence more costly and the provision of goods and services more expensive. It also creates unemployment, causing wages to be lowered by the monopolists, who control the big producing organizations, and whose land was already obtained when it was cheap. Consequently this basic structure of our current macroeconomics system, works to limit opportunity and to create poverty, see above reference.

    The most basic cause of our continuing poverty is the lack of properly paid work and the reason for this is the lack of opportunity of access to the land on which the work must be done. The useful land is monopolized by a landlord who either holds it out of use (for speculation in its rising value), or charges the tenant heavily for its right of access. In the case when the landlord is also the producer, he/she has a monopolistic control of the land and of the produce too, and can charge more for this access right than what an entrepreneur, who seeks greater opportunity, normally would be able to afford.

    A wise and sensible government would recognize that this problem derives from lack of opportunity to work and earn. It can be solved by the use of a tax system which encourages the proper use of land and which stops penalizing everything and everybody else. Such a tax system was proposed 136 years ago by Henry George, a (North) American economist, but somehow most macro-economists seem never to have heard of him, in common with a whole lot of other experts. (I would guess that they don’t want to know, which is worse!) In “Progress and Poverty” 1879, Henry George proposed a single tax on land values without other kinds of tax on produce, services, capital gains etc. This regime of land value tax (LVT) has 17 features which benefit almost everyone in the economy, except for landlords and banks, who/which do nothing productive and find that land dominance has its own reward.

    17 Aspects of LVT Affecting Government, Land Owners, Communities and Ethics

    Four Aspects for Government:

    1. LVT, adds to the national income as do other taxation systems, but it replaces them.
    2. The cost of collecting the LVT is less than for all of the production-related taxes–tax avoidance becomes impossible because the sites are visible to all.
    3. Consumers pay less for their purchases due to lower production costs (see below). This creates greater satisfaction with the management of national affairs.
    4. The national economy stabilizes—it no longer experiences the 18 year business boom/bust cycle, due to periodic speculation in land values (see below).

    Six Aspects Affecting Land Owners:
    5. LVT is progressive–owners of the most potentially productive sites pay the most tax.
    6. The land owner pays his LVT regardless of how his site is used. A large proportion of the ground-rent from tenants becomes the LVT, with the result that land has less sales-value but a significant “rental”-value (even when it is not used).
    7. LVT stops speculation in land prices and the withholding of land from proper use is not worthwhile.
    8. The introduction of LVT initially reduces the sales price of sites, even though their rental value can still grow over a longer term. As more sites become available, the competition for them is less fierce.
    9. With LVT, land owners are unable to pass the tax on to their tenants as rent hikes, due to the reduced competition for access to the additional sites that come into use.
    10. With LVT, land prices will initially drop. Speculators in land values will want to foreclose on their mortgages and withdraw their money for reinvestment. Therefore LVT should be introduced gradually, to allow these speculators sufficient time to transfer their money to company-shares etc., and simultaneously to meet the increased demand for produce (see below).

    Three Aspects Regarding Communities:
    11. With LVT, there is an incentive to use land for production or residence, rather than it being unused.
    12. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper too, because entrepreneurs have less difficulty in starting-up their businesses and because they pay less ground-rent–demand grows, unemployment decreases.
    13. Investment money is withdrawn from land and placed in durable capital goods. This means more advances in technology and cheaper goods too.

    Four Aspects About Ethics:
    14. The collection of taxes from productive effort and commerce is socially unjust. LVT replaces this extortion by gathering the surplus rental income, which comes without any exertion from the land owner or by the banks–LVT is a natural system of national income-gathering.
    15. Bribery and corruption on information about land cease. Before, this was due to the leaking of news of municipal plans for housing and industrial development, causing shock-waves in local land prices (and municipal workers’ and lawyers’ bank balances).
    16. The improved use of the more central land reduces the environmental damage due to a) unused sites being dumping-grounds, and b) the smaller amount of fossil-fuel use, when traveling between home and workplace.
    17. Because the LVT eliminates the advantage that landlords currently hold over our society, LVT provides a greater equality of opportunity to earn a living. Entrepreneurs can operate in a natural way– to provide more jobs. Then earnings will correspond to the value that the labor puts into the product or service. Consequently, after LVT has been properly introduced it will eliminate poverty and improve business ethics.

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