Geoscience Reference
In-Depth Information
Fig. 16.9 Decomposition of the deviation in LA County capital stock (% point contributions to
total deviation)
simulation, the deviation path for F ( M ) follows the path for the wage premium
behavioral effect reported in Fig. 16.2 . 20 With Y ( M ) determined in the regional labor
market via (Eq. 16.4 ), the positive deviation in F ( M ) causes a negative deviation in
Y ( Diseq ) . Via (Eq. 16.6 ) this causes the net inter-regional immigration rate to fall, and
with it, the regional population. After 2016, as F ( M ) gradually returns to baseline,
the negative contribution of the wage premium shock to the regional population
deviation gradually attenuates (Fig. 16.7 ). By the end of the simulation period, F ( M )
has almost returned to baseline (Fig. 16.2 ). Nevertheless, in Fig. 16.7 , we see the
wage premium continues to make a sizeable contribution to the negative population
deviation. This reflects two legacies of the positive deviations in the wage premium
in earlier periods. First, the working age population is a stock variable. At any given
point in time, deviations in its value from baseline reflect accumulated past flows of
deviations in net inter-regional migration. Second, over time, deviations in popula-
tion and capital interact. By reducing the size of the regional population, and with it,
regional employment, the wage premium reduces the marginal physical product of
capital by lowering the labor/capital ratio. This explains the sizeable contribution
made by the wage premium to the capital deviation in Fig. 16.9 . However, causa-
tion also runs in the other direction. A lower capital stock, for any given level of the
working age population and the employment rate, lowers the marginal physical
product of labor, and with it the wage. This damping effect on the regional wage via
20 With the size of the shock scaled to reflect the share of the wage bill in zip code 90071 in the
total LA County wage bill.
Search WWH ::




Custom Search