Imperfect labour mobility in a CGE model: Does factor specific productivity matter?

CGE models usually make extreme assumptions about labour mobility: labour is either perfectly mobile between sectors or fixed to a sector. With perfect mobility of labour, simulations lead to reallocation of labour among different sectors of the economy. The labour productivity can vary strongly between different sectors, reflecting the fact that labour of a specific type, e.g. unskilled workers, may not be homogenous. When labour moves from less to more productive sectors, an economy experiences a de facto increase in labour endowments, this obviously effects the results and becomes interesting when questioning the sector specificity of labour productivity. Separating the impacts of implicit increases in labour endowments from other impacts arising from labour reallocation is therefore important for result interpretation. For this purpose this study uses a CGE model in which labour reallocation is imperfect with a migration function governing the movement between sectors. We thus control the physical flows of labour which is a precondition to allow for depicting factor specific productivity. Two scenarios are run in order to analyse the size and relevance of the productivity, effect: the first scenario causing movement from less productive to more productive industries, the second scenario induces movement of labour from more productive to less productive industries.