Regional Misallocation, Wage Rigidities, and Imperfect Labor Mobility
(2024)
Files
Lachapelle_Pascucci_20240521.pdf
Open Access - Adobe PDF
- 5.86 MB
Details
- Authors
- Abstract
- (en) The constraints imposed by the wage regulation of many countries are thought to be the cause of substantial employment losses and regional disparities. We set up a quan- titative spatial equilibrium model with wage-constrained labor markets, unemployment, commuting, and migration to assess the local and aggregate effects of wage rigidities. We quantify the model on Belgium, where wages are strictly regulated and do not correlate with local productivity. We calculate the impact of removing wage rigidities by simulating the economy under different labor mobility scenarios. We find that, when workers can only change workplace, welfare increases by 0.5% to 2% across municipalities, depending on the initial local unemployment rate. Instead, allowing workers to also change residence equal- izes the welfare effects at about 1%. However, the effects on local wages and employment are not quantitatively different across scenarios, highlighting the importance of commuting as insurance. Finally, the endogenous reduction in social security contributions generates welfare effects three times larger than those from the pure reallocation of workers.
- Affiliations
Citations
Lachapelle, N., & Pascucci, F. (2024). Regional Misallocation, Wage Rigidities, and Imperfect Labor Mobility. https://hdl.handle.net/2078.5/235338