The Incidence of Local Labor Demand Shocks
Low-skill workers are comparatively immobile: when labor demand slumps in a city, low-skill workers are disproportionately likely to remain to face declining wages and employment. This paper estimates the extent to which (falling) housing prices and (rising) social transfers can account for this fact using a spatial equilibrium model. Nonlinear reduced form estimates of the model using U.S. Census data document that positive labor demand shocks increase population more than negative shocks reduce population, this asymmetry is larger for low-skill workers, and such an asymmetry is absent for wages, housing values, and rental prices. GMM estimates of the full model suggest that the comparative immobility of low-skill workers is not due to higher mobility costs per se, but rather a lower incidence of adverse labor demand shocks.
This is a revised version of the first chapter of my dissertation. I am grateful to Daron Acemoglu, David Autor, and Amy Finkelstein for their guidance and support. I also thank Leila Agha, Josh Angrist, Fernando Duarte, Tal Gross, Erik Hurst, Cynthia Kinnan, Jean-Paul L.Huillier, Amanda Pallais, Jim Poterba, Michael Powell, Nirupama Rao, Bill Wheaton, and seminar participants at MIT, Northwestern, Berkeley, Harvard Kennedy School, University of Chicago, Wharton, Stanford, Yale School of Management, and Brown for helpful comments. I gratefully acknowledge the National Institute of Aging (NIA grant number T32-AG000186) and the MIT Shultz Fund for financial support. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Matthew J. Notowidigdo, 2020. "The Incidence of Local Labor Demand Shocks," Journal of Labor Economics, vol 38(3), pages 687-725.