Skill Remoteness and the Economics of Local Labor Markets

This work quantifies the effects of discrepancies between local supply and demand for skills on wages, employment, and mobility rates of laid-off workers. I propose the concept of local skill remoteness to capture the degree of dissimilarity between the skill profiles of workers and jobs in a local labor market. I implement a measure of local skill remoteness at the occupation-city level, and find that higher skill remoteness at layoff is associated with lower re-employment rates and lower wages upon re-employment. Earnings differences between the top and bottom skill remoteness quartiles amount to a loss of 15% of the median worker's annual income and persist for at least two years. Skill-remote workers also have a higher probability of changing occupation, a lower probability of being re-employed at jobs with similar skill profiles, a higher propensity to migrate to another city and, conditional on migration, a higher likelihood of becoming less skill-remote. Motivated by this evidence, I develop a search-and-matching model with two-sided heterogeneity that provides a natural framework to interpret my skill remoteness measure. I use a calibrated version of the model to show that subsidies to on-the-job training lower the average skill remoteness of unemployed workers, thus the aggregate unemployment rate. The marginal benefit of such a policy is increasing in the level of unemployment.