Concentration in Industry-Delineated and Occupation-Delineated Local Labor Markets

Abstract

This paper compares estimates of the level of local labor market concentration as well as its effect on labor earnings in the U.S. through two approaches: an approach defining local labor markets based on industries, and an approach defining labor markets based on occupations. I first outline a methodology for estimating Herfindahl-Hirschman Index (HHI) for occupational-based local labor market concentration, even when the given establishment data source has no information about the detailed occupational composition of establishments. Applying this methodology, I find that the average occupation-defined local labor market is much less concentrated than the average industry-defined local labor market. The material impact of labor market concentration on labor earnings is quantitatively stronger in the industry case. In the baseline 2SLS regression models using a broad level of geography, I find that going from the 25th to the 75th percentile of the weighted distribution of labor market concentration is associated with a 17.17% earnings decrease in the industry case and 5.96% in the occupation case. Issues related to the definition of local labor markets for the study of labor market concentration are discussed.