Abstract

I evaluate the local economic impacts of contractions in US military personnel between 1988 and 2000. I propose a novel empirical strategy combining the synthetic control and instrumental variables methods and estimate the causal effects on the equilibrium quantities and prices of local labor, housing, and product markets. Contractions in military personnel substantially reduced local civilian employment; however, local populations adjusted quickly, mainly through reduced in-migration, 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 for workers is small.