Population Responses to Local Labor Demand Shifts: Evidence from the Collapse of Finnish-Soviet Trade

Abstract

I study how regional populations respond to local labor demand shifts by quantifying how the collapse of Finnish-Soviet trade in early 1990s affected regional working-age populations in Finland. I identify local labor demand shifts by using regional variation in the production of goods that were exported from Finland to Soviet Union. I find that the more local employment focused on the production of Soviet exported goods, the more region’s share of total working-age population decreased in response to the shock. The demand shifts affected regions' de-mographic compositions as the reductions were driven by young and more educated people. The findings suggest that regional population responses contribute to equilibrating local labor markets after asymmetric labor demand shocks.