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The Incidence of Local Labor Demand Shocks

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  • Matthew J. Notowidigdo

Abstract

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17167.

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Date of creation: Jun 2011
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Handle: RePEc:nbr:nberwo:17167

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