Distributed Lags in Local Responses to Fluctuations in Unemployment

In this paper the sources of distributed lags, involving both positive and negative lead and lag terms, in the relationship between local and national unemployment series are analysed. First, the elements of labour supply and demand from which local unemployment changes result are considered, with emphasis on the role of induced labour migration. Second, the consequences of the arithmetical relationship between local and national unemployment series are examined. It is shown that the national-local unemployment relationship should be nonlinear and the lag distribution should be dependent on the level of unemployment. More explicit recognition of causal relationships is necessary if substantive conclusions are to be drawn from statistical analyses of lag structures.