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Local Labor Markets

Robert H. Topel
Journal of Political Economy
Vol. 94, No. 3, Part 2: Hoover Institution Labor Conference (Jun., 1986), pp. S111-S143
Stable URL: http://www.jstor.org/stable/1837178
Page Count: 33
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Local Labor Markets
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Abstract

This paper studies the processes of wage and employment dynamics within local labor markets. The theoretical context is a dynamic spatial equilibrium among locales that is supported by incentives to migrate to markets offering the greatest present value of future earnings. Thus costly migration arbitrages geographic wage differences. Using a time series of cross-sectional files from the Current Population Surveys of 1977-79, I find that wages are sensitive to interarea differences in market conditions. A positive relative shock to local labor demand increases relative wages within a locale, but expectations of future demand actually reduce current wages because of increased current migration. Thus wages are more flexible in response to transitory changes in local market conditions than to permanent ones. Consistent with theory, wages are most flexible among the least mobile demographic groups, who are inelastically supplied across geographic areas.

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