Working Paper: NBER ID: w21706
Authors: Ferdinando Monte; Stephen J. Redding; Esteban Rossi-Hansberg
Abstract: To understand the elasticity of employment to local labor demand shocks, we develop a quantitative general equilibrium model that incorporates spatial linkages in goods markets (trade) and factor markets (commuting and migration). We show that local employment elasticities differ substantially across U.S. counties and commuting zones in ways that are not well explained by standard empirical controls but are captured by commuting measures. We provide independent evidence for these predictions from million dollar plants and find that empirically-observed reductions in commuting costs generate welfare gains of around 3.3 percent and employment reallocations from -20 to 30 percent.
Keywords: Commuting; Migration; Local Employment Elasticities; Labor Demand Shock
JEL Codes: F16; J6; J61; R0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local employment elasticity (J69) | local productivity shocks (J69) |
| reductions in commuting costs (R48) | welfare gains (D69) |
| reductions in commuting costs (R48) | employment reallocations (J62) |
| commuting linkages (R41) | local employment responses to labor demand shocks (J69) |
| local employment elasticity (J69) | predictions of local shock impact on individual county (R23) |