LABOR MARKET BEHAVIOR IN WASHINGTON: A COINTEGRATION APPROACH

In recent years, the research that investigates impact of employment on other labor related variables has a prominent place in regional science. Generally, it is well understood that new business investment brings changes in population, increased labor force participation rate and migration of new residents. There is mixed research results regarding the extent that new migrants tend to account for new employment. Bartik (1993) found that about one-quarter of the new jobs go to local workers because of the increase in the labor force participation rates of local residents in the long run. He considered the long run effects by estimating the effects of 1% job growth in a certain period on the labor force participation rate seventeen years after the period. In contrast Blanchard and Katz's (1992) research reaches the opposite conclusion - in five to seven years the employment response consists entirely of the migration of new migrants. Their finding is that long-run effect of the job growth on the labor force participation rate is negligible.In this study, from the cointegration time series analysis, we found a long run equilibrium relationship among population, labor force participation rate and employment, in which population is positively related to employment and negatively related to labor force participation rate. The long run effect of a unit change of labor force participation rate (1%) is a decrease of 73,880 in population and the long run effect of a unit change in employment (1000) is an increase of 2,190 in population.We decomposed the time series into stationary components and non-stationary components. The pattern of the stationary component of population is quite similar to that of labor force participation rate while that of employment shows a different fluctuation. From the decomposition, it was obvious that the pattern of stationary component of employment and net migration is quite similar, which means net migration is the short run, temporary response to employment change. The patterns of three years delayed stationary components of population are similar to that of employment and net migration, and the plots correspond to changing economic conditions. According to the change in economic conditions population responds three years later than employment and net migration. We interpreted the non-stationary component of labor force participation rate as reflecting the increasing trend of labor force participation rate in Washington mainly due to a considerable increase in the female labor force participation.The impulse responses of population, employment and labor force participation rate to a one standard deviation shock in employment show permanent increase effects. They settle at different equilibrium value after long term periods. The response of the labor force participation rate to an impulse in employment supports Bartik's finding. Obviously the result is the opposite of Blanchard-Katz's finding that the long-run effect of job growth on the labor force participation rate is negligible. However, since the effect of population is also significantly high, we doubt that the effect of increase in labor force participation rate according to the employment shock covers only local resident labor force.