Labour immobility between industries: Consequences for the macroeconomy

Parantap Basu, David Chivers and Changhyun Park

Economic Systems, 2024, vol. 48, issue 2

Abstract: Workers are failing to move to the most productive industries, despite the offer of higher wages. In order to explain this phenomenon, we provide evidence that when an industry experiences a positive, labour-productivity shock, it is subsequently harder for firms to find workers. This is represented by a fall in relative matching efficiency. We present a stylised two-sector search and matching model to show the consequences of this negative relationship. Our calibrated model not only closely tracks US wages and employment share over time, but also reveals substantial output losses as a result of labour misallocation between industries.

Keywords: Matching efficiency; Two-sector search and matching model; Labour productivity shock; Wage gap; Labour mobility friction; Labour misallocation (search for similar items in EconPapers)
JEL-codes: E24 J31 J62 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:48:y:2024:i:2:s0939362524000062

DOI: 10.1016/j.ecosys.2024.101184

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