Abstract
A large literature has documented the persistent effects of historic events. This paper studies the effects of a historical demographic shock, documenting persistent effects that are historically contingent. I exploit military Second World War (WWII) casualties in Austrian municipalities as a natural experiment for a negative population shock, and study the economic consequences until today. In the short run, WWII casualties lead to structural transformation: labour is reallocated from agriculture towards manufacturing. This effect persists for decades. But instead of more economic development in the long run, WWII casualties led to a lower concentration of jobs and lower wages today. A more detailed analysis shows that in high‐casualty municipalities, employment increased predominantly in low‐skill industries within manufacturing, and these municipalities missed out on the transition to the service sector around the turn of the century.
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