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Redistribution of Local Labor Market Shocks through Firms' Internal Networks

January 2017

Working Paper Number:

CES-17-03

Abstract

Local labor market shocks are difficult to insure against. Using confidential micro data from the U.S. Census Bureau's Longitudinal Business Database, we document that firms redistribute the employment impacts of local demand shocks across regions through their internal networks of establishments. During the Great Recession, the massive decline in house prices caused a sharp drop in consumer demand, leading to large employment losses in the non-tradable sector. Consistent with firms smoothing out the impacts of these shocks across regions, we find large elasticities of non-tradable establishment-level employment with respect to house prices in other counties in which the firm has establishments. At the same time, establishments of firms with larger regional networks exhibit lower employment elasticities with respect to local house prices in the establishment's own county. To account for general equilibrium adjustments, we aggregate non-tradable employment at the county level. Similar to what we found at the establishment level, we find that non-tradable county-level employment responds strongly to local demand shocks in other counties linked through firms' internal networks. These results are not driven by direct demand spillovers from nearby counties, common shocks to house prices, or local demand shocks affecting non-tradable employment in distant counties indirectly via the trade channel. Our results suggest that firms play an important role in the extent to which local labor market risks areshared across regions.

Document Tags and Keywords

Keywords Keywords are automatically generated using KeyBERT, a powerful and innovative keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant keywords.

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:
demand, market, economist, sector, recession, regional, country, area, economically, unobserved, spillover, elasticity, region, locality, housing, shock, supermarket

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:
Metropolitan Statistical Area, Internal Revenue Service, Ordinary Least Squares, Census Bureau Longitudinal Business Database, Longitudinal Business Database, Decennial Census, Employer Identification Numbers, New York University, North American Industry Classification System, Net Present Value, Herfindahl Hirschman Index

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