Local shocks in labor markets: competition and information flow among peers

We present causal evidence of the effect of local labor supply shocks on labor outcomes of young job seekers in a developing country. We study a large-scale internship program in Argentina that randomly alters job seekers’ local labor environment. Exposure to areas with high program saturation results in adverse effects on labor market outcomes following program completion, while having a nearby individual who participated in the program improves labor outcomes. These results are compatible with the coexistence of a mechanism of transmission of valuable labor market information among peers and a competition mechanism.

Keywords: Local labor market shocks, Labor market frictions, Spacial frictions, Information frictions, Networks, Externalities, Displacement effects