Moving to Fluidity: Regional Growth and Labor Market Churn

Abstract

This paper studies the connection between regional growth trends and labor market dynamics. New data on manufacturing worker flows for U.S. cities 1969-1981 show more new hires and more voluntary quits in growing cities, but more forced layoffs in shrinking cities. Recessions are special in growing cities in that hires and quits drop, whereas in shrinking cities layoffs rise. A quantitative business cycle model with migration and on-the-job search accounts for a large share of variation in growth and worker flows both over time and across space. Growing cities in the South and West had low job creation costs and only gradual in-migration, so tight labor markets encouraged more on-the-job search. In those cities, aggregate job destruction shocks generated recessions with lower labor market churn. In the shrinking cities of the Rust Belt, in contrast, churn was always low and responded little in recessions.