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The Adjustment of Local Labor Markets to Demand and Supply Shocks

16th National Competition for Economic Research Grants

Labour economics

Senior Researcher : Jan Stuhler

Research Centre or Institution : Universidad Carlos III de Madrid.


The main question of my project is how local labor markets adjust to external forces, and if different types of economic shocks trigger different adjustment mechanisms. The project led to three main findings. The first relates to the observation that immigration causes a significant increase in activity and employment in the construction sector. The construction sector is usually not modeled separately in studies of local economic shocks. However, my findings suggest that this sector can play an important role, in particular when considering economic shocks that are closely related to population levels, such as migration.

Second, the observation that labor market shocks tend to be a dynamic, not a static phenomenon. The same local labor markets tend to experience similar type of economic shocks over time, and it therefore becomes important to use empirical strategies that account for the dynamics of the labor market adjustment over time. Third, the observation that the impact of local economic shocks is very different on regions than on workers.

Much of the empirical research has considered the impact of economic shocks on the performance of local labor markets, but our results suggest that the regional effects are very different from the effects of economic shocks on individual workers­–which often is the more relevant question.

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