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Labour immobility between industries: Consequences for the macroeconomy

Author

Listed:
  • Basu, Parantap
  • Chivers, David
  • Park, Changhyun

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.

Suggested Citation

  • Basu, Parantap & Chivers, David & Park, Changhyun, 2024. "Labour immobility between industries: Consequences for the macroeconomy," Economic Systems, Elsevier, vol. 48(2).
    • Handle: RePEc:eee:ecosys:v:48:y:2024:i:2:s0939362524000062
    DOI: 10.1016/j.ecosys.2024.101184
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    More about this item

    Keywords

    Matching efficiency; Two-sector search and matching model; Labour productivity shock; Wage gap; Labour mobility friction; Labour misallocation;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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