Working Paper: CEPR ID: DP17494
Authors: Sebastian Heise; Tommaso Porzio
Abstract: We develop a frictional labor market model with multiple regions and heterogeneous firms to study how frictions impeding labor mobility across space aaffect the joint allocation of labor across firms and regions. Bringing the model to matched employer-employee data from Germany, we find that spatial frictions generate large misallocation of labor across firms within regions. By shielding firms from competition for workers from other regions, spatial frictions allow low productivity firms to expand, reducing aggregate productivity. Overall, we show that taking into account the characteristics of the local labor market is important to quantify the aggregate losses from spatial frictions.
Keywords: No keywords provided
JEL Codes: J6; O1; R1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| spatial frictions (R12) | misallocation of labor across firms within regions (J69) |
| spatial frictions (R12) | low productivity firms expanding (D25) |
| low productivity firms expanding (D25) | aggregate productivity reduction (E23) |
| removing spatial frictions (R12) | increase in GDP per capita (O49) |
| removing spatial frictions (R12) | increase in average real wages (J31) |
| joint allocation of labor across firms and regions (J49) | understanding aggregate productivity losses due to spatial frictions (R32) |
| local labor market characteristics (J29) | quantifying aggregate productivity losses (E23) |
| different local labor market frictions (J69) | varying aggregate gains from removing spatial barriers (R12) |
| spatial frictions (R12) | differentiated impacts across regions and worker types (J79) |