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Worker migration or job creation? Persistent shocks and regional recoveries

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  • Greenaway-McGrevy, Ryan
  • Hood, K

Abstract

Although a large body of literature has documented the role of household out-migration in the recovery from regional downturns, the role that firms play in the recovery process has remained a neglected topic of research. Firms may choose to locate new jobs in depressed regions, thereby reducing unemployment through the job creation channel. We present a new empirical model of regional adjustment that permits us to decompose recoveries into both household and firm responses to local economic conditions. The model features a set of auxiliary serial dependence parameters that are used to filter out persistency in the identified labor market shocks, so that changes in employment obtained from the fitted model only reflect the endogenous firm response of interest, and not the ongoing exogenous job destruction from the original downturn. We find that the labor demand response is two to three times larger than the labor supply response, meaning that local job creation-and not household out-migration-is the main driver of recoveries in the US. This result is robust to a wide variety model specifications and identification strategies.

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  • Greenaway-McGrevy, Ryan & Hood, K, 2016. "Worker migration or job creation? Persistent shocks and regional recoveries," Working Papers 28513, Department of Economics, The University of Auckland.
    • Handle: RePEc:auc:wpaper:28513
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    2. Mr. Tigran Poghosyan, 2018. "Regional Labor Mobility in Finland," IMF Working Papers 2018/252, International Monetary Fund.
    3. Ryan Greenaway-McGrevy & Gail Pacheco & Kade Sorensen, 2018. "Land Use Regulation, the Redevelopment Premium and House Prices," Working Papers 2018-02 JEL Classificatio, Auckland University of Technology, Department of Economics.
    4. Zhang, Haoran, 2023. "Coal busts and urban recovery: Evidence from China," Regional Science and Urban Economics, Elsevier, vol. 101(C).
    5. Stuhler, Jan & Jaeger, David & Ruist, Joakim, 2018. "Shift-Share Instruments and the Impact of Immigration," CEPR Discussion Papers 12701, C.E.P.R. Discussion Papers.
    6. Katheryn N. Russ & Jay C. Shambaugh & Sanjay R. Singh, 2024. "Currency Areas, Labor Markets, and Regional Cyclical Sensitivity," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(1), pages 152-195, March.
    7. Greenaway-McGrevy, Ryan, 2022. "Forecast combination for VARs in large N and T panels," International Journal of Forecasting, Elsevier, vol. 38(1), pages 142-164.

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    More about this item

    JEL classification:

    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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