Job Amenity Shocks and Labor Reallocation

We introduce aggregate shocks to workers' value of job amenities in a frictional equilibrium model of the labor market with on-the-job search, where the job creation cost is sunk and quits trigger vacancies. We examine how key labor market indicators respond to this shock: when the valuation of the amenity is heterogeneous in the population, labor reallocation ensues. A calibrated version of the model can quantitatively account for many distinct traits of the post-pandemic labor market recovery through three aggregate shocks: a temporary fall in productivity to account for the short, but sharp, downturn; a decline in the willingness to work; and, crucially, a persistent increase in workers' evaluation of job amenities. Cross-sectoral patterns of vacancies, quit rates, job-filling rates, and wages—where sectors are ranked by their share of teleworkable jobs—provide support to the view that the key amenity in question is the ability to work remotely.