Shock Propagation Diagnostic (SPD) : Local Labor Market Impacts of Economic Shocks and Policies

Overview & Synopsis

Economic shocks such as commodity price volatility, climate disruptions, or large infrastructure investments reshape local labor markets. Understanding who is affected, where, and through which channels is essential for designing policies that promote shared prosperity and resilience. This report introduces the Shock Propagation Diagnostic (SPD), a reduced-form framework that combines shift share (Bartik) exposure measures with input-output propagation to trace direct effects on exposed sectors and indirect spillovers through domestic production networks. The report showcases three country applications, Cambodia, Mongolia, and the Democratic Republic of Congo (DRC), each supported by a replication package. Cambodia and DRC illustrate ex-ante scenario simulation, while Mongolia is the report's Tier 1 causal ex-post application: as a price taker in international commodity markets, Mongolia faces plausibly external price shocks that are combined with predetermined regional employment shares and before-and-after labor-market data. Earlier Brazil and Viet Nam studies are used only to illustrate prior Tier 1 applications of the approach. Across the three featured cases, supply-chain spillovers are quantitatively important, adjustment often operates through wages, hours, and informality, and distributional outcomes depend critically on initial economic structure. SPD is designed as an early-entry diagnostic tool that complements more complex models through a transparent, data-efficient lens for rapid deployment.