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Most Downloaded Articles
- Comparing Wealth Effects: The Stock Market versus the Housing Market by Case, Karl E./ Quigley, John M. and Shiller, Robert J.
- Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium by Heylen, Freddy and Van de Kerckhove, Renaat
- The Effects of the Great Recession on Central Bank Doctrine and Practice by Bernanke, Ben S.
- Dynamics of Wealth and Consumption: New and Improved Measures for U.S. States by Zhou, Xia and Carroll, Christopher D.
TFP Differences and the Aggregate Effects of Labor Mobility in the Long Run
Citation Information: The B.E. Journal of Macroeconomics. Volume 7, Issue 1, ISSN (Online) 1935-1690, DOI: 10.2202/1935-1690.1370, May 2007
- Published Online:
The coexistence of barriers to labor mobility with large output-per-worker disparities driven by Total Factor Productivity (TFP) differences suggests that the world's labor force is misallocated across countries. We investigate the extent and consequences of this potential misallocation in the context of a simple two-location growth model, in which production requires capital, labor and an essential immobile factor (land). We characterize the magnitude of labor movements implied by an efficient long-run allocation, and derive their implications for capital accumulation. Quantitatively, even for moderate TFP differences, we find substantial increases in world output associated with efficient allocations. These output increases are driven by large movements of labor from low to high TFP countries, as well as by a sizeable increase in the capital stock and changes in its endogenous division across countries. Our results are robust to a large set of parameter values, including unrealistically conservative ones.