Demographics and Sectoral Reallocations: A Search Theory with Immobile Workers

Simona Cociuba () and James (Jim) MacGee ()

No 920, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: We show that a decline in the young share of the population exacerbates sectoral reallocation costs. We develop a three sector, perpetual youth search model with sector-specific human capital and two interconnected frictions: sectoral preferences, which imply that only some workers are mobile across sectors, and a wage bargaining distortion, whereby mobile workers’ outside option of searching in the growing sector dampens the fall in shrinking sector wages, leading to rest unemployment. In our parameterized model, output losses after a sectoral reallocation are significant.

Date: 2019
New Economics Papers: this item is included in nep-dge
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