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ABSTRACTThis paper analyzes an important shock to local labor demand in the financial services sector: firm relocation to Delaware following a Supreme Court ruling and state legislation in the 1908s. Using synthetic controls and bordering states, I find significant effects on employment growth, the unemployment rate, and participation in the first decade. Employment spillovers to the nontradable sector and migration appear larger than estimates from shocks to the tradable sector. Effects persist for 10 to 20 years after Delaware loses its original policy-induced advantage. The shift towards a low unemployment sector explains this persistence, rather than direct productivity effects or agglomeration.
JEL Classification Codes: R10, J20, G20Key Words: Labor demand shocks, regulatory competition, migration, local labor markets
Acknowledgments:I am grateful to Kevin Lang, Daniele Paserman, and Johannes Schmieder for many helpful conversations. I am also thankful to Peter Ganong, Theresa Gutberlet, Walker Hanlon, Shawn Kantor, Enrico Moretti, Matt Notowidigdo, Ken Simons, Alex Whalley, and seminar participants at Rensselaer Polytechnic Institute, University at Albany, the University of Illinois at UrbanaChampaign, the Montreal Applied Economics Workshop, the RPI Conference on Regional Economic Growth, and the Urban Economics Association Annual Conference for useful comments. I thank Larry Katz for providing data on state unemployment rates before 1976, and David Swayze for useful institutional knowledge. I acknowledge financial support from the W.E. Upjohn Institute for Employment Research. Abstract This paper analyzes an important shock to local labor demand in thenancial services sector: rm relocation to Delaware following a Supreme Court ruling and state legislation in the 1980s. Using synthetic controls and bordering states, I nd signicant eects on employment growth, the unemployment rate, and participation in the rst decade. Employment spillovers to the nontradable sector and migration appear larger than estimates from shocks to the tradable sector. Eects persist for 10 to 20 years after Delaware loses its original policyinduced advantage. The shift towards a low unemployment sector explains this persistence, rather than direct productivity eects or agglomeration.JEL classication codes: R10, J20, G20