How Effects of Local Labor Demand Shocks Vary with Local Labor Market Conditions
Upjohn Institute Working Paper 14-202
54 Pages Posted: 4 Feb 2014
Date Written: January 15, 2014
This paper estimates how effects of shocks to local labor demand on local labor market outcomes vary with initial local economic conditions. The data are on U.S. metro areas from 1979 to 2011. The paper finds that demand shocks to local job growth have greater effects in reducing local unemployment rates if the local economy is initially depressed than if the local economy is booming. Demand shocks have greater effects on local wage rates if the local unemployment rate is initially low, but lesser effects if local job growth is initially high. These different effects of local demand shocks imply that social benefits of adding jobs are two to three times greater per job in more depressed local labor markets, compared to more booming local labor markets.
Keywords: Local labor markets, labor demand, social benefits of job creation
JEL Classification: R23, H43, J64
Suggested Citation: Suggested Citation