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Faculty of Economics

CWPE Cover

Laws, A.

Localised employment spillovers

CWPE2067

Abstract: This paper is the first to provide firm level estimates of the propagation rates of localised employment shocks through space and time. A spatial network of the universe of UK firms with near pinpoint location accuracy is used to estimate the firm-level employment adjustment to mass layoffs. Results show that firm level employment adjustment is highly localised and decays rapidly through space - the negative spillover effects halve approximately every kilometre further away from the event. Firm level adjustment is also highly persistent, with further localised employment losses continuing for at least five years after the event. The spillover effects are experienced by a wide range of local firms, but are strongest in non-tradeable sector firms, consistent with the presence of local product demand transmission mechanisms. The paper provides new supporting evidence to theories that sluggish firm level adjustment interacting with local agglomeration forces generate persistence in local labour market outcomes. Furthermore, the micro-level effects uncovered are extremely localised, and thus more standard analysis methods discretising space into regions will incur significant measurement costs.

Keywords: local employment dynamics, spillover decay rates, agglomeration

JEL Codes: J23 J63 R12

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PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2067.pdf