The Incidence of Local Labor Demand Shocks

65 Pages Posted: 25 Jun 2011

See all articles by Matthew Notowidigdo

Matthew Notowidigdo

University of Chicago - Booth School of Business

Date Written: June 2011


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

Notowidigdo, Matthew, The Incidence of Local Labor Demand Shocks (June 2011). NBER Working Paper No. w17167, Available at SSRN:

Matthew Notowidigdo (Contact Author)

University of Chicago - Booth School of Business ( email )

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