IDEAS home Printed from https://ideas.repec.org/p/fip/fednsr/898.html
   My bibliography  Save this paper

Spatial Wage Gaps and Frictional Labor Markets

Author

Listed:
  • Sebastian Heise
  • Tommaso Porzio

Abstract

We develop a job-ladder model with labor reallocation across firms and space, which we design to leverage matched employer-employee data to study differences in wages and labor productivity across regions. We apply our framework to data from Germany: twenty-five years after the reunification, real wages in the East are still 26 percent lower than those in the West. We find that 60 percent of the wage gap is due to labor being paid a higher wage per efficiency unit in West Germany, and quantify three distinct barriers that prevent East Germans from migrating west to obtain a higher wage: migration costs, workers' preferences to live in their home region, and more frequent job opportunities received from home. Interpreting the data as a frictional labor market, we estimate that these spatial barriers to mobility are small, which implies that the spatial misallocation of workers between East and West Germany has at most moderate aggregate effects.

Suggested Citation

  • Sebastian Heise & Tommaso Porzio, 2019. "Spatial Wage Gaps and Frictional Labor Markets," Staff Reports 898, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:898
    as

    Download full text from publisher

    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr898.pdf
    File Function: Full text
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Harald Uhlig, 2006. "Regional Labor Markets, Network Externalities and Migration: The Case of German Reunification," American Economic Review, American Economic Association, vol. 96(2), pages 383-387, May.
    2. David Lagakos & Ahmed Mushfiq Mobarak & Michael E. Waugh, 2018. "The Welfare Effects of Encouraging Rural-Urban Migration," NBER Working Papers 24193, National Bureau of Economic Research, Inc.
    3. Luca David Opromolla & Lorenzo Caliendo & Fernando Parro & Alessandro Sforza, 2017. "Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement," Working Papers w201717, Banco de Portugal, Economics and Research Department.
    4. Benoît Schmutz & Modibo Sidibé, 2019. "Frictional Labour Mobility," Review of Economic Studies, Oxford University Press, vol. 86(4), pages 1779-1826.
    5. Lorenzo Caliendo & Maximiliano Dvorkin & Fernando Parro, 2019. "Trade and Labor Market Dynamics: General Equilibrium Analysis of the China Trade Shock," Econometrica, Econometric Society, vol. 87(3), pages 741-835, May.
    6. Hamory Hicks, Joan & Kleemans, Marieke & Li, Nicholas & Miguel, Edward, 2017. "Reevaluating Agricultural Productivity Gaps with Longitudinal Microdata," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258015, Agricultural and Applied Economics Association.
    7. Rebecca Diamond, 2016. "The Determinants and Welfare Implications of US Workers' Diverging Location Choices by Skill: 1980-2000," American Economic Review, American Economic Association, vol. 106(3), pages 479-524, March.
    8. Rebecca Diamond & Tim McQuade & Franklin Qian, 2019. "The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco," American Economic Review, American Economic Association, vol. 109(9), pages 3365-3394, September.
    9. Chernozhukov, Victor & Hong, Han, 2003. "An MCMC approach to classical estimation," Journal of Econometrics, Elsevier, vol. 115(2), pages 293-346, August.
    10. Dale T. Mortensen, 2005. "Wage Dispersion: Why Are Similar Workers Paid Differently?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633191, September.
    11. Jake Bradley & Fabien Postel-Vinay & Hélène Turon, 2017. "Public Sector Wage Policy and Labor Market Equilibrium: A Structural Model," Journal of the European Economic Association, European Economic Association, vol. 15(6), pages 1214-1257.
    12. M. J. Andrews & L. Gill & T. Schank & R. Upward, 2008. "High wage workers and low wage firms: negative assortative matching or limited mobility bias?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(3), pages 673-697, June.
    13. Tanja Hethey-Maier & Johannes F. Schmieder, 2013. "Does the Use of Worker Flows Improve the Analysis of Establishment Turnover? Evidence from German Administrative Data," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 133(4), pages 477-510.
    14. Christian Moser & Niklas Engbom, 2016. "Earnings Inequality and the Minimum Wage: Evidence from Brazil," 2016 Meeting Papers 72, Society for Economic Dynamics.
    15. Akos Valentinyi & Berthold Herrendorf, 2008. "Measuring Factor Income Shares at the Sector Level," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 820-835, October.
    16. Akos Valentinyi & Berthold Herrendorf, 2008. "Measuring Factor Income Shares at the Sector Level," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 820-835, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Busch, Christopher & Krueger, Dirk & Ludwig, Alexander & Popova, Irina & Iftikhar, Zainab, 2020. "Should Germany have built a new wall? Macroeconomic lessons from the 2015-18 refugee wave," Journal of Monetary Economics, Elsevier, vol. 113(C), pages 28-55.
    2. Morchio, Iacopo & Moser, Christian, 2018. "The Gender Pay Gap: Micro Sources and Macro Consequences," MPRA Paper 99276, University Library of Munich, Germany, revised 24 Mar 2020.
    3. Hao, Tongtong & Sun, Ruiqi & Tombe, Trevor & Zhu, Xiaodong, 2020. "The effect of migration policy on growth, structural change, and regional inequality in China," Journal of Monetary Economics, Elsevier, vol. 113(C), pages 112-134.
    4. Emmler, Julian & Fitzenberger, Bernd, 2020. "The Role of Unemployment and Job Change When Estimating the Returns to Migration," IZA Discussion Papers 13740, Institute of Labor Economics (IZA).
    5. Moser, Christian & Saidi, Farzad & Wirth, Benjamin & Wolter, Stefanie, 2020. "Credit Supply, Firms, and Earnings Inequality," MPRA Paper 100371, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Heise, Sebastian & Porzio, Tommaso, 2019. "Spatial Wage Gaps in Frictional Labor Markets," CEPR Discussion Papers 14197, C.E.P.R. Discussion Papers.
    2. Chaoran Chen & Diego Restuccia & Raul Santaeulalia-Llopis, 2017. "The Effects of Land Markets on Resource Allocation and Agricultural Productivity," Working Papers tecipa-592, University of Toronto, Department of Economics.
    3. Gabriel M. Ahlfeldt & Stephen J. Redding & Daniel M. Sturm & Nikolaus Wolf, 2015. "The Economics of Density: Evidence From the Berlin Wall," Econometrica, Econometric Society, vol. 83, pages 2127-2189, November.
    4. Gottlieb, Charles & Grobovšek, Jan, 2019. "Communal land and agricultural productivity," Journal of Development Economics, Elsevier, vol. 138(C), pages 135-152.
    5. Lewis, Joshua & Severnini, Edson, 2020. "Short- and long-run impacts of rural electrification: Evidence from the historical rollout of the U.S. power grid," Journal of Development Economics, Elsevier, vol. 143(C).
    6. Fredrik Carlsen & Stefan Leknes, 2015. "For whom are cities good places to live?," Working Paper Series 16215, Department of Economics, Norwegian University of Science and Technology.
    7. Herkenhoff, Kyle F. & Ohanian, Lee E. & Prescott, Edward C., 2018. "Tarnishing the golden and empire states: Land-use restrictions and the U.S. economic slowdown," Journal of Monetary Economics, Elsevier, vol. 93(C), pages 89-109.
    8. Adrien Bilal & Esteban Rossi-Hansberg, 2018. "Location as an Asset," 2018 Meeting Papers 87, Society for Economic Dynamics.
    9. Rafael Dix-Carneiro & Brian K Kovak, 2016. "Trade Liberalization and Regional Dynamics," Working Papers id:11213, eSocialSciences.
    10. Klaus Desmet & Esteban Rossi-Hansberg, 2014. "Spatial Development," American Economic Review, American Economic Association, vol. 104(4), pages 1211-1243, April.
    11. Chaoran Chen, 2017. "Untitled Land, Occupational Choice, and Agricultural Productivity," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(4), pages 91-121, October.
    12. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.),Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941, Elsevier.
    13. Redding, Stephen J., 2016. "Goods trade, factor mobility and welfare," Journal of International Economics, Elsevier, vol. 101(C), pages 148-167.
    14. Stephen J. Redding & Esteban Rossi-Hansberg, 2017. "Quantitative Spatial Economics," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 21-58, September.
    15. Engbom, Niklas & Moser, Christian, 2020. "Firm Pay Dynamics," MPRA Paper 98477, University Library of Munich, Germany.
    16. repec:spo:wpecon:info:hdl:2441/6ggbvnr6munghes9od0s108ro is not listed on IDEAS
    17. Jeremy Lise & Costas Meghir & Jean-Marc Robin, 2016. "Matching, Sorting and Wages," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 63-87, January.
    18. Desmet, Klaus & Rossi-Hansberg, Esteban, 2015. "On the spatial economic impact of global warming," Journal of Urban Economics, Elsevier, vol. 88(C), pages 16-37.
    19. Franz Hamann & Fernando Arias-Rodríguez & Jesus Bejarano & Margarita Gafaro & Juan C. Mendez-Vizcaino & Andrea Paola Poveda-Olarte, 2019. "Productividad total de los factores y eficiencia en el uso de los recursos productivos en Colombia," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República - ESPE, issue 89, pages 1-54, February.
    20. David Card & Ana Rute Cardoso & Joerg Heining & Patrick Kline, 2018. "Firms and Labor Market Inequality: Evidence and Some Theory," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 13-70.
    21. Muro, Kazunobu, 2013. "A note on the three-sector Cobb–Douglas GDP function," Economic Modelling, Elsevier, vol. 31(C), pages 18-21.

    More about this item

    Keywords

    migration; aggregate labor productivity; employment; labor mobility;

    JEL classification:

    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:898. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/frbnyus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.