Local Labor Market Geographic Containment Assumption
Regional policy experiments require geographical boundaries that contain labor market spillovers within defined jurisdictions. High worker mobility across administrative borders causes spillover leakage into control regions, leading to severe underestimation of displacement externalities.
Picture this
Testing a noise reduction ordinance in one apartment unit only works as a self-contained trial if neighboring tenants stay inside their own units rather than constantly moving back and forth between apartments during the study.
What the evidence says
Annual geographical relocation rates in Denmark are 1.0% among unemployed workers and 1.4% among employed workers, confirming that administrative counties function as isolated local labor markets with minimal spatial spillover leakage.
- Who
- N = 89,466 unemployed benefit applicants across 15 administrative counties in Denmark.
- How
- Empirical validation of county-level market isolation using national administrative mobility statistics from the Danish Research Council.
What to do
Verify that regional mobility rates across experimental administrative borders are sufficiently low before treating local geographic units as self-contained labor markets.
From the source
"However, the Danish research council (2002) reports that within a year only one percent of the Danish unemployed and 1.4 percent of the employed workers move location."
Estimating Equilibrium Effects of Job Search Assistance
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