Local Labor Market Dynamics and Agglomeration Effects

42 Pages Posted: 14 Oct 2021 Last revised: 17 Jul 2023

See all articles by Pierre Deschamps

Pierre Deschamps

Stockholm University - Swedish Institute for Social Research (SOFI)

Guillaume Wilemme

University of Leicester - Department of Economics, Finance and Accounting

Date Written: July 1, 2023

Abstract

Local labor market conditions are strongly persistent. Using a search-and-matching model with agglomeration effects and worker and firm migration, we study the transitional dynamics of a regional economy. We estimate the impact of a negative shock on the local labor market using state-level U.S. data to provide moments that are then matched to the simulated model. Agglomeration effects and migration elasticities are critical factors responsible for the persistent employment level response. Short-term place-based policies can help the region since they dampen the impact of the shock on the employment level.

Keywords: agglomeration economies, local labor markets, search frictions, transitory dynamics

JEL Classification: J21, J61, L26, R13, R23

Suggested Citation

Deschamps, Pierre and Wilemme, Guillaume, Local Labor Market Dynamics and Agglomeration Effects (July 1, 2023). Available at SSRN: https://ssrn.com/abstract=3941989 or http://dx.doi.org/10.2139/ssrn.3941989

Pierre Deschamps

Stockholm University - Swedish Institute for Social Research (SOFI) ( email )

Kyrkgatan 43B
SE-106 91 Stockholm
Sweden

Guillaume Wilemme (Contact Author)

University of Leicester - Department of Economics, Finance and Accounting ( email )

United Kingdom

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