Labor Market Competition and Its Effect on Firms and Local Communities | Reject & Resubmit at American Economic Review

Abstract

We examine the impact of a sharp increase in labor market competition on the entire ecosystem of local communities, leveraging a labor demand shock in Norway that raised real wages and incentivized increased worker commuting from Sweden. By linking individual-level register data across both countries, we demonstrate that these worker reallocations have dramatic and persistent effects on both sending and receiving communities. In Sweden, the local population declined and inequality rose as increased competition from Norwegian firms forced local businesses to exit, downsize, and reduce average wage markdowns. In contrast, Norwegian firms benefited from hiring equally productive Swedish workers at lower costs while some Norwegian workers experienced spatial displacement to nearby regions. Notably, high-skilled workers lost their skill premium due to the influx of positively selected Swedes.

Samuel Dodini

Senior Research Economist

My broad research interests include empirical explorations of the economics of labor markets, incorporating insights from behavioral economics, occupational licensing, monopsony power, education, public finance, and urban economics.