Are larger labor market more resilient? Evidence of the French army restructuring on exit from unemployment

This article explore how the relation between economic shocks and local unemployment can be mitigated by labor market size. We exploit a quasi-natural experiment by studying the economic impact of 357 local shocks both negative and positive generated by the reform and the restructuring of the French army. Exploiting a geo-referenced dataset of unemployment spell over an extensive period of time (2005-2014), we are able to measure the impact of these local shock on the rate at which unemployed workers find a job. To construct a credible counterfactual for each zone which experienced a closure, we use an interactive fixed effects model. We show that contractions in military personnel reduce the local likelihood of finding a job. Moreover, our results reveal some heterogeneity in the local economy's resilience. In line with our theoretical model, we show that city size is a relevant explanation for the observed heterogeneity in resilience: the likelihood of finding a job is less affected in denser area by a relative equal-sized shift in labor demand.