Labor mobility over the business cycle

Résumé

This paper studies the macroeconomic effects of internal migration in an economy with labor market frictions and quantifies its role in mitigating asymmetric shocks. Labor mobility is viewed as an important mechanism to stabilize the economy from regional shocks in currency unions. But this view ignores the equilibrium effects of worker mobility in the presence of search frictions. In this paper, I show how labor search frictions can account for the observed procyclicality of migration in the United States. Using microdata, I document that job-to-job transitions account for most of the interstate movements. However, during downturns, there is a significant increase in the relocation of unemployed workers across states. Procyclicality of migration is then accounted mostly by procyclicality of job-to-job transitions. I develop a general equilibrium model with local and aggregate business cycles and search frictions that can capture the observed employment transitions for workers moving across states. I calibrate the model to the U.S. economy and study the implications of labor mobility on local and aggregate labor markets.