Why is the market for labor a local market?

Project Notes:

- Topel (JPE, 1986) “Local Labor Markets” o Defines local labor markets by assuming a distribution of mobility costs H(M), which can differ by age and education. o Topel writes: “Consistent with theory, wages most flexible among least mobile demographic groups, who are inelastically supplied across geographic areas.” . It’s “consistent with theory” in the sense that the mobility costs are assumed to be different across education groups . Does not discuss where differences in mobility costs would be coming from . “Boundary” of local labor markets comes entirely from the shape of this H(M) function. If it was mass point at zero, then we are in Roback model with full (national) spatial equilibrium and a national labor market (i.e. amenity-adjusted wages always equalized across space)

- My evidence on asymmetric responses to shocks using census tract data is also consistent with differential distribution of mobility costs by education o These results await instrumentation! o My interpretation of these results is that a greater observed decline in housing and labor market variables in low-skill census tracts for given decline in population comes mostly from the fact that a given decline in population in low-skill census tracts corresponds to a greater economic shock . i.e. shock must be more severe in low-skill tracts to drive out equivalent number of (relatively less mobile) people o Amy is concerned about …??? Motivates desire to find instrumental variable for migration o But … oil instrument does not seem to be working. . Possible next step, Blanchard-Katz …  They use 2-digit industry shares, which in theory could be available at county level  1-digit industry shares definitely available at county level  Does this instrument even make sense?

- Glaeser-Gyourko (JPE, 2004) “Urban Decline and Durable Housing” o These authors find evidence that urban decline is “not the mirror image of urban growth.” They interpret the stark evidence of asymmetric responses to shocks as consistent with a Roback model of spatial equilibrium with durable housing. Durable housing implies that housing supply elasticity is downwardly inelastic but much more elastic in upward direction (i.e. “kinked” housing supply elasticity with kink at current housing supply). . This model has no local labor markets; only a local supply of durable housing. Labor market is national. . No mobility costs in this model (“violent” tipping in response to shocks as in all Roback models)

- BUT Several reasons (besides differences in mobility costs) why low-skill people are more attached to current location (and thus “inelastically supplied to their local labor market”) o Housing costs are larger fraction of expenditure share for low-skill workers; thus declines in rental prices and average housing values is relatively more valuable for them o Low-skill workers more likely to qualify for transfer payments (and conditional on qualifying, these payments are also relatively more valuable for them) o Crime . Preferences for crime may differ by education  Are differences in preferences much better than differences in distribution of moving costs?  Alternatively, the costs of crime might be relatively lower for low- skill workers . County-level crime data available in Uniform Crime Report  http://fisher.lib.virginia.edu/collections/stats/crime/  http://search.icpsr.umich.edu/NACJD/query.html? col=abstract&op0=&tx0=uniform+crime+reporting+program+data +[united+states]%3A+county&ty0=p&fl0=title%3A&op1=- &tx1=restricted&ty1=w&fl1=availability%3A&fl2=title %3A&tx2=uniform+crime+reports %3A+county&ty2=p&op2=&nh=500&rf=3  Other data sources? o Local prices . I am stuck here . Newspaper prices?  http://www.gti.net/mocolib1//prices/1975.html . BLS city-level prices  http://www.bls.gov/cpi/cpiovrvw.htm  http://www.bls.gov/bls/blsresda.htm  How detailed are BLS city-level prices?  Publicly-available data by 4-region on prices for “Ground chuck, 100% beef, per lb.” Is this “privately” available at city level? (http://www.nber.org/~notom/local_labor/northeast_food.pdf)  Patricia reports prices for “Beef and veal” o “Residual” of differences in asymmetric responses by education after netting out all of the above can be plausibly attributed to mobility costs

- MAIN QUESTION #1: How much of differences in asymmetric responses to shocks by education can be explained by the factors above o The “theory” I have is a combination of durable housing and mobility costs which interact with preferences for housing, local goods, etc which give “local labor markets in general equilibrium” . Still working on simple model o Testable implications from “theory”: . Implication #1: “Stayers” should increase housing consumption in declining cities  Find evidence of both quality (amenity) and quantity (# of bedrooms) upgrades . Other implications??  Prices/Employment of non-tradable services??  Need more work here … TODO once theory is more developed o Conjecture -- I believe that my model will imply that local labor markets themselves are defined asymmetrically: . i.e. mobility costs and/or durable housing (combined with the factors above) imply that the elasticity of workers into a labor market is greater than the elasticity of workers leaving a labor market following a shock. . Suggests asymmetric responses to many typically studied labor demand and labor supply shocks:  Military bases opening/closing  Immigration  Changes in labor demand (Blanchard-Katz) o I conjecture that positive labor demand shocks will have impulse response functions that are not symmetric to negative labor demand shocks.  Also suggests that looking at the effect of labor market conditions on other outcomes requires recognizing that the labor market is asymmetric (e.g. effect of unemployment on crime)

- Next steps o Labor lunch on December 9th o Finish simple general equilibrium model with durable housing, mobility costs, local prices, and housing/non-housing consumption choice o Next steps on empirical front? . Crime data . Local prices o What do firms do? . The Blanchard-Katz story focuses on migration as the “most important factor in adjustment to regional demand shocks” . Behavior of firms producing tradable (versus non-tradable) goods might provide additional tests of model.