Working Paper: NBER ID: w17167
Authors: Matthew J. Notowidigdo
Abstract: 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.
Keywords: labor demand shocks; low-skill workers; housing prices; social transfers
JEL Codes: H53; J01; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Low-skill workers' comparative immobility (J69) | Lower incidence of adverse labor demand shocks (J89) |
| Adverse labor demand shocks (J23) | Compensation by housing price declines and social transfers for low-skill workers (J69) |
| Local labor market conditions (J29) | Transfer payments are highly responsive (F16) |
| Positive labor demand shocks (J23) | Population increase (J11) |
| Negative labor demand shocks (J23) | Population decrease (J11) |
| Positive labor demand shocks (J23) | Population change (J11) |
| Housing supply curve is concave (R31) | Housing prices respond asymmetrically to demand shocks (R21) |