Long-Run Effects on Employment Rates of Local Demand Shocks, Across and Within Local Labor Markets

This paper estimates the long-run effects on a county’s prime-age employment rate of labor demand shocks to both the county and its overlying commuting zone (CZ). These effects are allowed to vary with local “distress” (baseline employment rate of the county or CZ), and with the size of the demand shock. In more distressed CZs, a county’s employment rate is more affected by county or CZ shocks. As a result, targeting or reallocating jobs to more distressed CZs will tend to raise employment rates. If a county is relatively distressed compared to its CZ, targeting job shocks at that county has greater effects on county employment rates. Reallocating CZ jobs or job shocks toward more distressed counties within a CZ results in greater effects on the CZ’s average employment rate. In addition, a CZ shock’s effects on a county’s employment rate tend to be higher if the CZ’s baseline demand-driven growth trend is below average. This is particularly true in CZs whose baseline distress was average or low