Title:Cities with too Few Nannies: Regulated Spillovers from High-Skilled Consumption to Low-Skilled Labor Markets

Speaker:Shimeng Liu, Jinan University

Host:Zhao Rong, Associate Professor, RIEM

Time:14:00-15:30,April 28, Friday

Venue:H501, Liulin Campus

Abstract:  This paper studies how the local housing supply regulations restrict low-skilled workers from responding to local labor demand shocks. Over the past three decades, skilled-biased technology has induced the growth of college-educated workers to different extents across cities. With a high opportunity cost of time, cities with more college-educated workers generate a greater demand for low-skilled services. Depending on whether low-skilled workers are migrating into these cities, the rising demand can increase employment or increase wages of low-skilled workers, who are the primary providers of these services. In a spatial-equilibrium model, I illustrate that stringent housing supply regulations push up housing costs, discourage the migration of low-skilled workers, and, therefore, increase wages of low-skilled workers without creating many more jobs. To isolate this consumption-related mechanism from the production-side theories–including production complementarity and knowledge spillover–I divide low-skilled workers by service and non-service occupations. Using the index developed in Saks (2008) to measure housing supply regulations across cities and using the Bartik-style shocks to instrument the growth of college-educated population, I find that, in more regulated cities, the growth of the college-educated population is associated with larger wage growth and smaller employment growth for low-skilled service occupations than in less-regulated cities. Moreover, the effect of regulation is less evident for non-service occupations. These results suggest that stringent housing supply regulations can induce the inefficiency in spatial allocation of labors and depress the growth of service sector.