Abstract
A simple equilibrium model of sectoral reallocation is developed in order to study the impact of heterogeneous moving costs on unemployment. The model blends key elements of standard sectoral reallocation theory and the competitive search model. Heterogeneity in moving costs is introduced via mobile and immobile workers. The impact of mobile workers on the unemployment rates of mobile and immobile workers is of particular interest. The model shows that the share of mobile workers raises their unemployment rate. The model also shows that when labor mobility is driven by a sectoral level aggregate disturbance, mobile workers can have a non-monotonic, but globally negative impact on the unemployment rate of immobile workers. However, when labor mobility is driven by an idiosyncratic sector-worker match effect, the share of mobile workers raises the unemployment rate of immobile workers.
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Notes
The interaction of within-sector trading frictions and sectoral mobility is also considered in other studies. For example, Lkhagvasuren (2007, 2012) uses a similar multi-sector setting to analyze local labor market dynamics in the U.S. Carrillo-Tudela and Visschers (2013) develop an equilibrium multi-sector model with within-sector trading frictions to study the cyclicality of sectoral reallocation.
In the model, mobile workers have higher productivity since they move across sectors costlessly. Therefore, by construction, economy-wide employment and the share of mobile workers are positively related. This is not inconsistent with the procyclicality of mobility studied by Moscarini and Thomsson (2007); Kambourov and Manovskii (2009); Lkhagvasuren (2012) and Carrillo-Tudela and Visschers (2013).
In our analysis, we consider ex-ante identical workers and assume that unemployment income b is the same among workers with different productivity shocks. One can allow b to increase with the idiosyncratic productivity shock x to reflect the possibility that more productive workers value leisure more. However, using the results below in Proposition 2, one can see that such a variation in income b is inconsequential for the results, as long as the job-finding rate increases with productivity (see Eq. 35).
In fact, using state-level data, Blanchard and Katz (1992) show that net mobility reduces the impact of an adverse labor demand shock on local unemployment.
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Acknowledgments
We would like to thank an anonymous referee, Mark Bils, Effrosyni Diamantoudi, Gordon Fisher and David Fuller for helpful comments and suggestions.
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Lkhagvasuren, D., Nitulescu, R. Sectoral Mobility and Unemployment with Heterogeneous Moving Costs. J Labor Res 34, 339–358 (2013). https://doi.org/10.1007/s12122-013-9163-3
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DOI: https://doi.org/10.1007/s12122-013-9163-3
Keywords
- Sectoral unemployment
- Aggregate unemployment
- Island model
- Competitive search
- Net and gross mobility
- homeownership
- Aging population