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The Incidence of Local Labor Demand Shocks


  • Matthew J. Notowidigdo


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.

Suggested Citation

  • Matthew J. Notowidigdo, 2011. "The Incidence of Local Labor Demand Shocks," NBER Working Papers 17167, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17167
    Note: LS

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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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