If anyone knows the Neumark, Salas, and Wascher critique of the contiguous counties approach as well as the Dube et al. response well and wants to write up a guest post, I'd be interested in hearing from you. I haven't gotten to these papers in my recent push to familiarize myself with the literature and am afraid I might not. But it's clearly important. As my last post suggests, I think the spatial heterogeneity point looms over all the other issues in this debate, so if it's poorly dealt with that matters.
I suspect it's not - I kind of got a sense of Dube et al.'s response to Neumark, Salas, and Wascher in one of their responses to Meer and West. But I'd be interested in hearing from someone that's done a closer reading.
Without dealing with that I really don't see where the model identification is. Without the county match you've really just got a fixed effects model that you're trying to pretend has the identification properties of a DID. Right?