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Abstract:

Journal article
The persistence of local joblessness
Michael Amior and Alan Manning
July 2018

American Economic Review 108(7), 2018
DOI: 10.1257/aer.20160575

Differences in employment-population ratios across US commuting zones have persisted for many decades. We claim these disparities represent real gaps in economic opportunity for individuals of fixed characteristics. These gaps persist despite a strong migratory response, and we attribute this to high persistence in labor demand shocks. These trends generate a "race" between local employment and population: population always lags behind employment, yielding persistent deviations in employment rates. Methodologically, we argue the employment rate can serve as a sufficient statistic for local well-being; and we model population and employment dynamics using an error correction mechanism, which explicitly allows for disequilibrium. (JEL J21, J61, J64, R23) It is well known that local joblessness is very persistent: see Kline and Moretti (2013) on the United States, Overman and Puga (2002) on Europe, and OECD (2005) for crosscountry comparisons. This is illustrated in panel A of Figure 1, which compares employment-population ratios (henceforth, employment rates) in 1980 and 2010 among 16-64-year-olds, for the 50 largest US commuting zones. The correlation is 0.42. We also find substantial persistence for both men and women and in both labor force participation and unemployment rates (see online Appendix E for further graphical illustrations). The persistence might naturally be interpreted as an equilibrium phenomenon, driven by local variation in demographic composition or compensated by local amenities. In this view, utility is equalized across areas (at least for marginal residents) and we would therefore not expect any systematic relationship between employment rates and population growth. However, panel B of Figure 1 shows a strong population response: those areas with the highest employment rates in 1980 grew by over 50 percentage points more in the subsequent three decades than those with the

DOI: 10.1257/aer.20160575