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The Aggregate and Distributional Effects of Spatial Frictions

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  • Sebastian Heise
  • Tommaso Porzio

Abstract

We develop a general equilibrium model of frictional labor reallocation across firms and regions, and use it to quantify the aggregate and distributional effects of spatial frictions that hinder worker mobility across regions in Germany. The model leverages matched employer-employee data to unpack spatial frictions into different types while isolating them from labor market frictions that operate also within region. The estimated model shows sizable spatial frictions between East and West Germany, especially due to the limited ability of workers to obtain job offers from more distant regions. Despite the large real wage gap between East and West of Germany, removing the spatial frictions leads, in equilibrium, to only a small increase in aggregate productivity and it mostly affects the within-region allocation of labor to firms rather than the between-region allocation. However, spatial frictions have large distributional consequences, as their removal drastically reduces the gap in lifetime earnings between East and West Germans.

Suggested Citation

  • Sebastian Heise & Tommaso Porzio, 2021. "The Aggregate and Distributional Effects of Spatial Frictions," NBER Working Papers 28792, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28792
    Note: DEV EFG ITI
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    Cited by:

    1. Bachmann, Rüdiger & Bayer, Christian & Stüber, Heiko & Wellschmied, Felix, 2022. "Monopsony Makes Firms Not Only Small but Also Unproductive: Why East Germany Has Not Converged," IZA Discussion Papers 15293, Institute of Labor Economics (IZA).
    2. Cassan,Guilhem & Keniston,Daniel & Kleineberg,Tatjana Karina, 2021. "A Division of Laborers : Identity and Efficiency in India," Policy Research Working Paper Series 9544, The World Bank.
    3. Akcigit, Ufuk & Alp, Harun & Diegmann, André & Serrano-Velarde, Nicolas, 2024. "Committing to grow: Employment targets and firm dynamics," IWH Discussion Papers 17/2023, Halle Institute for Economic Research (IWH), revised 2024.
    4. Vittorio Bassi & Raffaela Muoio & Tommaso Porzio & Ritwika Sen & Esau Tugume, 2022. "Achieving Scale Collectively," Econometrica, Econometric Society, vol. 90(6), pages 2937-2978, November.
    5. Aliprantis, Dionissi & Martin, Hal & Tauber, Kristen, 2024. "What determines the success of housing mobility programs?," Journal of Housing Economics, Elsevier, vol. 65(C).
    6. Ufuk Akcigit & Harun Alp & André Diegmann & Nicolas Serrano-Velarde, 2023. "Committing to Grow: Privatizations and Firm Dynamics in East Germany," Working Papers 685, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. Rüdiger Bachmann & Christian Bayer & Heiko Stüber & Felix Wellschmied, 2022. "Monopsone machen Unternehmen nicht nur klein, sondern auch unproduktiv: Warum die Wirtschaft Ostdeutschlands nicht konvergiert ist," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 29(05), pages 09-12, October.
    8. Jung, Philip & Korfmann, Philipp & Preugschat, Edgar, 2023. "Optimal regional labor market policies," European Economic Review, Elsevier, vol. 152(C).
    9. Nezih Guner & Alessandro Ruggieri, 2021. "Misallocation and inequality," Discussion Papers 2021/01, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    10. Antonia Díaz & Álvaro Jáñez & Felix Wellschmied, 2023. "Geographic Mobility Over the Life-cycle," Documentos de Trabajo del ICAE 2023-01, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    11. Émilien Gouin‐Bonenfant, 2022. "Productivity Dispersion, Between‐Firm Competition, and the Labor Share," Econometrica, Econometric Society, vol. 90(6), pages 2755-2793, November.
    12. Barbara Boelmann & Anna Raute & Uta Schönberg, 2021. "Wind of Change? Cultural Determinants of Maternal Labor Supply," ECONtribute Discussion Papers Series 090, University of Bonn and University of Cologne, Germany.

    More about this item

    JEL classification:

    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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