Working Paper: NBER ID: w30298
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 affect 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: Labor Misallocation; Spatial Frictions; Productivity; Labor Mobility
JEL Codes: J61; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Spatial frictions (R12) | Labor misallocation across firms within regions (J49) |
| Spatial frictions (R12) | Local monopsony power (J42) |
| Local monopsony power (J42) | Expansion of low productivity firms (D25) |
| Labor misallocation across firms within regions (J49) | Aggregate productivity losses in Germany (E23) |
| Removing spatial frictions (R12) | Increase in GDP per capita (O49) |
| Removing spatial frictions (R12) | Increase in average wages (J31) |
| Spatial frictions (R12) | Job switch frequencies (J62) |
| Spatial frictions (R12) | Wage gains for movers (J31) |