Brown Bag Seminar: Francesco Pascucci

Titolo: Regional Misallocation, Wage Rigidities, and Imperfect Labor Mobility

Abstract: In this paper we set up a quantitative spatial equilibrium model to assess the local and aggregate effects of wage rigidities, and to study to which extent these effects depend on the degree of geographical labor mobility. We analyze the case of Belgium, where wages are strictly regulated and do not correlate with local productivity. We show the existence of a wide regional gap in productivity and unemployment. Moreover, the least productive region exhibits lower housing prices and higher real income per capita. We also observe little labor mobility: the majority of workers do not change residence over a one-year horizon, and commuting distances are in general short. In the counterfactuals, we find that when wage rigidities are removed the local effects on wages and employment do not depend on the migratory response of workers once they are allowed to change workplace. At the national level, the average wage would drop by 3%, while aggregate labor income would increase by 4%. The welfare effects, on the other hand, would be negligible.