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Title: The Incidence of Local Labor Demand Shocks
Citation Type: Miscellaneous
Publication Year: 2010
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Abstract: Low-skill workers are comparatively immobile. When labor demand slumps in a city,college-educated workers tend to relocate whereas non-college workers are disproportionatelylikely to remain to face declining wages and employment. A standard explanation of thesefacts is that mobility is more costly for low-skill workers. This paper proposes and tests analternative explanation, which is that the incidence of adverse shocks is borne in large partby (falling) real estate rental prices and (rising) social transfers. These factors reduce the realcost of living dierentially for low-income workers and thus compensate them, in part or infull, for declining labor demand. I develop a spatial equilibrium model which, appropriatelyparameterized, identi?es both the magnitude of unobserved mobility costs by skill and theshape of the local housing supply curve. Nonlinear reduced form estimates using U.S. Cen-sus data document that positive labor demand shocks increase population more than negativeshocks reduce population, that this asymmetry is larger for low-skill workers, and that such anasymmetry is absent for wages, housing values, and rental prices. Estimates of the full modelusing a nonlinear, simultaneous equations GMM estimator suggest that (1) the asymmetricpopulation response is primarily accounted for by an asymmetric housing supply curve, (2)the dierential migration response by skill is primarily accounted for by transfer payments,and (3) estimated mobility costs are at most modest and are comparable for high-skill andlow-skill workers, suggesting that the primary explanation for the comparative immobility oflow-skilled workers is not higher mobility costs per se, but rather a lower incidence of adverselabor demand shocks.Keywords: local l
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Authors: Notowidigdo, Matthew J.
Publisher: Massachusetts Institute of Technology
Data Collections: IPUMS USA
Topics: Education, Labor Force and Occupational Structure, Poverty and Welfare
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