| Over the past 20 years, economists have tried to identify what causes regional employment and wage growth. Labor supply has been studied at the metropolitan area level, but on the demand side estimates have been made only for individual industries in metropolitan areas. No one, to the best of my knowledge, has studied a simultaneous model of aggregate demand and supply. The reason for this absence is that there has been no data available on the price of output from local industries.;The newly constructed tradeable goods price index, called the Export Price Index, solves this dilemma. It is available for 196 metropolitan areas over 16 years. The first simultaneous equation model of metropolitan-area growth combines city-specific export prices with national price indexes, such as the producer price index, to identify terms of trade shocks to individual cities. As the terms of trade (i.e., relative export-import prices) for each city improve or deteriorate, the city experiences positive or negative shocks.;With the integrated model, a series of hypotheses can be tested about how labor markets adjust to export price and terms of trade shocks. Results show that a city's adjustment to external shocks is significantly affected by the export prices of cities with similar industrial complexes and cities in close proximity. Using Hatanaka's two-step estimator, there is a modest degree of persistence in city employment patterns. |
