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The Impact of Labour Demand Shocks when Occupational Labour Supplies are Heterogeneous

Author

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  • Böhm, Michael Johannes

    (TU Dortmund)

  • Etheridge, Ben

    (University of Essex)

  • Irastorza-Fadrique, Aitor

    (Institute for Fiscal Studies, London)

Abstract

As technological advances accelerate and labour demands shift, the ability of workers to reallocate across occupations will be crucial for shaping labour market dynamics, inequality, and effective policy design. In this paper, we develop a tractable equilibrium model of the labour market that incorporates heterogeneous labour supply elasticities to different occupations and across different occupation pairs. Using worker flows from German administrative data, we estimate these elasticities and validate them through external measures such as occupational licensing and task distance. Our model quantifies the heterogeneous impacts of recent labour demand shifts on occupational wages and employment, highlighting the role of cross-occupation effects in shaping market responses to shocks. Finally, we leverage this framework to project employment flows and wage adjustments under future occupational demand shifts that are implied by the latest automation technologies.

Suggested Citation

  • Böhm, Michael Johannes & Etheridge, Ben & Irastorza-Fadrique, Aitor, 2025. "The Impact of Labour Demand Shocks when Occupational Labour Supplies are Heterogeneous," IZA Discussion Papers 17851, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17851
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    More about this item

    Keywords

    labour demand shocks; occupational substitutability; future projections; heterogeneous labour supply elasticities; automation technologies; german panel data; job flows; occupational employment and wages; automation technologies; future projections;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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