Linnea Lorentzen

Research:

The Unequal Effects of Trade and Automation across Local Labor Markets, with Simon Galle
Journal of International Economics (July, 2024)
Online Appendix, Replication Package

We quantify the joint impact of the China shock and automation of labor, across US commuting zones (CZs) in the period 2000-2007. To this end, we employ a multi-sector gravity model of trade with Roy-Fréchet worker heterogeneity across sectors, where labor input can be automated. Automation and increased import competition from China are both sector-specific; they lead to contractions in a sector's labor demand and a decline in relative income for CZs more specialized in that sector, amplified by a voluntary reduction in hours worked and an increase in frictional unemployment. The estimated model fits well with the aggregate performance of manufacturing subsectors and with the variation across CZs in changes in average income, the hourly wage, hours worked, the employment rate and employment in manufacturing. By itself, the China shock has stronger distributional effects than automation, but its impact on aggregate gains is less than a third of automation's impact.

Wage-Setting Constraints and Firm Responses to Demand Shocks, with Manudeep Bhuller, Lukas Delgado-Prieto, and Santiago Hermo
WP December 2025, SSRN No. 5954516

This paper investigates how institutional wage-setting constraints, such as a national minimum wage or collectively bargained wages, affect firm responses to demand shocks. We develop a framework to interpret heterogeneous shock responses that depend on the constraints firms face, and provide empirical evidence on the relevance of these constraints in shaping firm behavior across three countries with different institutional settings: Portugal, Norway, and Colombia. We discuss the implications of our findings for conventional estimates of rent-sharing and employer wage-setting power.

Domino Effects: Understanding Sectoral Reallocation and its Wage Implications
Awarded the prize for the Best Paper at the 21st Annual GEP/CEPR Postgraduate Conference 

This paper studies how the 2014 collapse in Brent Crude Oil prices propagated through the Norwegian labor market via worker reallocation. Using Norwegian panel data, I show that workers in non-tradable sectors more exposed to inflows of displaced oil workers experienced significant earnings declines and higher rates of sector exit, documenting a key propagation channel that extends the reach of sectoral shocks beyond the directly affected sector. To quantify the full network of equilibrium adjustments, I estimate a multisector Roy model with correlated sectoral skills and mobility costs. Counterfactual simulations show that non-tradable sector wages declined by up to 32% of the oil sector's wage loss. The magnitude of net worker reallocation between non-oil sectors was equivalent to 63% of the net outflow from the oil sector in the median commuting zone. The model shows how a single sectoral shock can trigger economy-wide labor market adjustment through worker movements. The simulations further reveal that the domino reallocation acts as an equalizing force: shutting it down amplifies both mean wage spillovers and wage dispersion within and across commuting zones.