NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Redistribution of Local Labor Market Shocks through Firms' Internal Networks

Xavier Giroud, Holger M. Mueller

NBER Working Paper No. 22396
Issued in July 2016, Revised in July 2016
NBER Program(s):Corporate Finance, Economic Fluctuations and Growth, Labor Studies

Local labor market shocks are difficult to insure against. Using confidential micro data from the U.S. Census Bureau’s Longitudinal Business Database, we document that firms redistribute the employment impacts of local demand shocks across regions through their internal networks of establishments. During the Great Recession, the massive decline in house prices caused a sharp drop in consumer demand, leading to large employment losses in the non-tradable sector. Consistent with firms smoothing out the impacts of these shocks across regions, we find large elasticities of non-tradable establishment-level employment with respect to house prices in other counties in which the firm has establishments. At the same time, establishments of firms with larger regional networks exhibit lower employment elasticities with respect to local house prices in the establishment’s own county. To account for general equilibrium adjustments, we aggregate non-tradable employment at the county level. Similar to what we found at the establishment level, we find that non-tradable county-level employment responds strongly to local demand shocks in other counties linked through firms’ internal networks. These results are not driven by direct demand spillovers from nearby counties, common shocks to house prices, or local demand shocks affecting non-tradable employment in distant counties indirectly via the trade channel. Our results suggest that firms play an important role in the extent to which local labor market risks are shared across regions.

download in pdf format
   (330 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22396

Users who downloaded this paper also downloaded* these:
Beraja, Hurst, and Ospina w21956 The Aggregate Implications of Regional Business Cycles
Suárez Serrato and Wingender w22425 Estimating Local Fiscal Multipliers
Kisgen, Osborn, and Reuter w22477 Analyst Promotions within Credit Rating Agencies: Accuracy or Bias?
Giroud and Mueller w23176 Firms' Internal Networks and Local Economic Shocks
Page, Schaller, and Simon w22394 The Effects of Aggregate and Gender-Specific Labor Demand Shocks on Child Health
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us