Examining the regional ripple effects of industrial transformation

Background and Objective

The manufacturing sector in Germany is undergoing a profound structural transformation, including one of the country’s key industries: the automotive sector. Plant closures and bankruptcies among automotive suppliers dominate the headlines, while the entire sector faces challenges from global transformation processes. These include shifting demand conditions and rising production costs -especially energy costs. Also the chemical-pharmaceutical sector, mechanical engineering, electrical industry, and other industrial sectors are also currently in a challenging economic situation.

These economic and structural changes do not affect all regions of Germany equally, but hit different regions with varying intensity. This raises the question of how severely rural areas are affected, particularly those in which manufacturing accounts for a large share of employment and value creation. The first goal of this project is thus to identify affected regions and classify them by the degree of impact. Based on these findings, more targeted economic policy measures can be developed, to help stabilize the industrial core of regional locations.

In parallel with the industrial transformation, the world of work has also changed. The growing trend toward remote work and improved mobility—facilitated, for example, by policy measures like the Deutschlandticket—allow people to commute longer distances to their workplace. From this perspective, the second goal of the project is to examine how regional economic shocks, especially job losses, affect choices of residence and workplace. While labor migration has been widely studied, the distinction between place of residence and place of work has often been overlooked.

Against this backdrop, the project aims to identify regional factors that influence people's location decisions following job loss. In detail, it will analyze how far workers are willing to commute and what is needed to retain the affected individuals—and with them, human capital—in the region. We aim to identify tipping points at which regions may enter a downward spiral. We also investigate whether retaining human capital strengthens a region’s long-term resilience—or, if not, whether it merely results in costs due to infrastructure provision.

Overall, the project promises valuable insights into mechanisms that allow regions to stabilize and evolve during times of deep economic transformation.

Approach

In line with the project’s first goal, the regions of Germany will first be classified according to the extent to which they are potentially affected by industrial transformation and the resulting shocks. In this context, factors that enhance or diminish regional economic resilience will also be identified. The main focus is on regions where industry accounts for a large share of employment, which are potentially especially vulnerable.

To achieve the second project goal, a spatial model will be developed to study workplace and residential location decisions in response to regional transformation processes. This model aims to answer the question of whether rural regions, in particular, are at risk of entering downward spirals due to job and population outflows—and what (regional) policy options are available to counteract such negative trends.

Data and Methods

To capture the sectoral specialization of regional economies as well as the socioeconomic characteristics of the residential population, input-output tables and microeconomic datasets (e.g., SIAB, SOEP) will be used. The resulting input-output analyses will provide initial assessments of the regional impacts of shocks. In the next step, mobility with respect to changes in residence and workplace will be analyzed empirically.

A quantitative spatial model with high geographical resolution will be developed, integrating goods flows and the spatial mobility of labor. This model will yield insights into how shocks affect different regions and sectors, the extent to which individuals change their residence and workplace, and what policy measures may be effective.

Our Research Questions

• Which regions in Germany are affected by industrial transformation, and to what extent?
• What characteristics increase or decrease the resilience of regions affected by industrial transformation?
• What factors determine how internal migration and worker commuting patterns respond to sectoral structural changes in a region?
• What measures can best support the process of industrial transformation from a regional policy perspective?