Following the end of the Cold War, the withdrawal of around 200,000 U.S. soldiers from Germany had far-reaching economic consequences for many affected regions. A new study by ECONtribute member Johannes Kochems and Jakob Schmidhäuser from ZEW’s Research Unit on Inequality and Public Policy shows that, on average, more than half of a local job disappeared for every U.S. soldier withdrawn.
For their analysis, the researchers examined the large-scale troop reductions that took place during the 1990s. Using newly assembled administrative data from the U.S. Department of Defense, they reconstructed troop levels at the municipal level and linked this information to data on employment and local public finances.
The findings reveal substantial economic effects. For each soldier who left, the number of local jobs declined by an average of 0.53. Notably, most of these losses did not occur directly on military bases. Approximately 61 percent of the lost jobs were in local businesses and service providers that had benefited from the spending of soldiers and their families.
The economic downturn also affected municipal budgets. As economic activity declined, local government revenues fell significantly. Many municipalities responded by reducing expenditures while simultaneously increasing local business and property tax rates. Even so, revenues remained permanently below their pre-withdrawal levels.
The long-term consequences were particularly severe for workers who lost their jobs as a result of base closures. Their employment prospects remained worse than those of comparable workers for many years. Even 15 years after losing their jobs, their daily wages were, on average, 9.2 percent lower.
The effects were not evenly distributed across the workforce. Women, older workers, and employees in regions with already weak labor markets were particularly hard hit.
The findings also provide relevant empirical evidence to current debates about the future U.S. military presence in Europe. They show that military installations serve a security function and act as important economic anchors for many regions. Closing them can have lasting effects on employment, incomes, and local public finances.
Find out more in ECONtribute Discussion Paper and on Handelsblatt.com.