Dynamic Responses to Labor Demand Shocks: Evidence from the Financial Industry in Delaware
Early Career Research Award
The proposed project will analyze the dynamic adjustment to a large exogenous labor demand shock: the relocation of financial firms to Delaware in the 1980s. The project will identify the economic adjustment mechanism and whether the policy responsible for this shock has any long-run impact. I have constructed an initial dataset from several sources, and propose to use synthetic control methods, along with regression-adjusted estimates, to analyze the policy impacts. Preliminary results based on the partially-complete dataset suggest that the policy causes short-run increases in total employment growth, decreases in the unemployment rate, and an in-migration of new workers. Twenty years after implementation, the unemployment rate and employment growth returned to the pre-policy equilibrium, while population growth continued. This preliminary evidence suggests the importance of population growth for convergence to the original equilibrium. Initial evidence of a permanent wage effect may signal agglomeration benefits or increased profitability. I propose to significantly enlarge the sample period and the economic outcomes of interest, to allow for a careful study of the local and aggregate policy impact.