Disaster-induced migration and local labor markets: Heterogeneous effects by skill level and industry structure

Natural disasters can trigger large-scale population displacement, resulting in labor market shocks in destination areas. Nonetheless, important aspects of migration-driven shocks remain unclear, particularly how relative inflow intensity, the spatially concentrated inflow of low-skilled migrants, and industry structure moderate these impacts. Using Hurricane Katrina as a natural experiment and a Difference in Difference framework, this study reveals that displacement shock reduces wages in the low-skill localized sector, but this negative impact is heavily characterized by non-linear congestion effects, intensifying sharply from $-0.15 to $-0.27 drop in wage rates when the inflow concentration crosses certain threshold. Decomposing the demand-side channels shows that while the influx stimulates local business creation, this countervailing buffer is economically modest and insufficient to offset the supply-driven wage depression. Furthermore, sectoral mobility and joint wage-setting analyses confirm that low-skill localized and traded industries remain highly segmented in the short run. These findings highlight the importance of accounting for both supply and demand channels, non-linear thresholds, and sectoral frictions to improve regional labor market policies after demographic shocks.