In Times of Crisis: Policies for Resilient Local Economies

In times of crisis, effective policies at the local level are key. This OECD programme paper discusses policies in response to recessions, natural disasters, and megatrends, demonstrating the importance of local government and administration.

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In times of the Covid-19 pandemic, recessions and natural disasters, effective policies at the local level are necessary to support people, firms, and places. The OECD Local Economic and Employment Development (LEED) Programme Paper, published in September 2022, reviews the empirical evidence for effective policies from across the OECD to strengthen local economic resilience. Emphasizing the importance of the local level, the paper demonstrates that local governments are key in supporting firms and people in transition processes. In times of crisis, local governments can develop strategies to improve local transport and trade infrastructure, while local administrations are important to help individuals, such as job seekers, and support affected workers during times of economic downturn.   

The LEED paper states that there is an overlap in policies that make economies resilient and those that make regions economically prosperous. As with the pandemic, global and national shocks will have different effects on and consequences for regions as they are usually differently affected by economic cycles, due to demographic factors and geographic and economic linkages within the country. 

 Policies are implemented at the local level in response to three types of shocks: recessions, natural disasters, and megatrends. Megatrends are global changes that can be grouped along three dimensions: technology, demography, and environment. The technological trend describes the demand for new goods and digital and technical services, such as artificial intelligence and robotics. The second dimension, demographic changes, includes the issues of ageing societies, while the environmental dimension describes the climate crisis and the loss of biodiversity. 

The following policies are being suggested for the three types of shocks: 

  • Employment support, the engagement of local governments and short-time work schemes are suggested policies for regional economic resilience during recessions. Also, active labour market policies (ALMPs) adapted to local needs, like aiding job seekers to find new employment, are key.  

  • Regarding natural disasters, four policies in the fields of Infrastructure and Trade, Supply Chains and Networks, and Financing and Insurance are mentioned. Crucial is whether the recovery mechanism should focus on repairing the damage or on rebuilding a new economy. 

  • For regional economies which are facing megatrends, long-term policies supporting continuous change are required. These regional economies must react to changing circumstances. In particular long-term industrial transitions such as robotics and automation require innovation-oriented policies at the local level, for instance entrepreneurship, social inclusivity, and skill development.   

The Programme Paper presents innovative ideas and practical examples of how to boost local development and job creation. The series highlights policies to support disadvantaged places and people, such as the low skilled, the unemployed, migrants, youth, and seniors. To access the paper, click here