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Imperfect mobility of labor across sectors and fiscal transmission

Research output: Working paper

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Imperfect mobility of labor across sectors and fiscal transmission. / Cardi, Olivier; Restout, Romain; Claeys, Peter.

Lancaster : Lancaster University, Department of Economics, 2018. (Economics Working Paper Series).

Research output: Working paper

Harvard

Cardi, O, Restout, R & Claeys, P 2018 'Imperfect mobility of labor across sectors and fiscal transmission' Economics Working Paper Series, Lancaster University, Department of Economics, Lancaster.

APA

Cardi, O., Restout, R., & Claeys, P. (2018). Imperfect mobility of labor across sectors and fiscal transmission. (Economics Working Paper Series). Lancaster University, Department of Economics.

Vancouver

Cardi O, Restout R, Claeys P. Imperfect mobility of labor across sectors and fiscal transmission. Lancaster: Lancaster University, Department of Economics. 2018 Sep. (Economics Working Paper Series).

Author

Cardi, Olivier ; Restout, Romain ; Claeys, Peter. / Imperfect mobility of labor across sectors and fiscal transmission. Lancaster : Lancaster University, Department of Economics, 2018. (Economics Working Paper Series).

Bibtex

@techreport{d49a599667e54fb3bb541280eb8d7a5c,
title = "Imperfect mobility of labor across sectors and fiscal transmission",
abstract = "Our paper investigates the impact of government spending shocks on relative sector size and contrasts the effects across countries. Using a panel of sixteen OECD countries over the period 1970-2007, our VAR evidence shows that a rise in government consumption i) increases the share of non tradables in labor and real GDP while lowering the share of tradables, and ii) causes a significant increase in non traded wages relative to traded wages. While the first finding reveals that the non traded sector is more intensive in the government spending shock and experiences a labor inflow that increases its relative size, the second finding suggests the presence of labor mobility costs preventing wage equalization across sectors. These labor mobility costs appear to play a key role in determining changes in relative sector size across time and space. Whilst the responses of intersectoral labor reallocation and sectoral shares are foundempirically to decline over time, the share of non tradables increases more in countries where the degree of labor mobility across sectors is higher. To account for our evidence, we develop an open economy version of the neoclassical model with tradables and non tradables. Our quantitative analysis shows that the open economy model is successful in replicating the responses of sectoral output shares to a fiscal shock, as long as we allow for a difficulty in reallocating labor across sectors along with adjustment costs to capital accumulation. Finally, calibrating the model to country-specific data, we are able to generate a cross-country relationship between the degree of labor mobility and the responses of sectoral output shares which is similar to that in the data. ",
keywords = "Fiscal policy, Labor mobility, Investment, Current account, Non tradables, Sectoral wages",
author = "Olivier Cardi and Romain Restout and Peter Claeys",
year = "2018",
month = sep
language = "English",
series = "Economics Working Paper Series",
publisher = "Lancaster University, Department of Economics",
type = "WorkingPaper",
institution = "Lancaster University, Department of Economics",

}

RIS

TY - UNPB

T1 - Imperfect mobility of labor across sectors and fiscal transmission

AU - Cardi, Olivier

AU - Restout, Romain

AU - Claeys, Peter

PY - 2018/9

Y1 - 2018/9

N2 - Our paper investigates the impact of government spending shocks on relative sector size and contrasts the effects across countries. Using a panel of sixteen OECD countries over the period 1970-2007, our VAR evidence shows that a rise in government consumption i) increases the share of non tradables in labor and real GDP while lowering the share of tradables, and ii) causes a significant increase in non traded wages relative to traded wages. While the first finding reveals that the non traded sector is more intensive in the government spending shock and experiences a labor inflow that increases its relative size, the second finding suggests the presence of labor mobility costs preventing wage equalization across sectors. These labor mobility costs appear to play a key role in determining changes in relative sector size across time and space. Whilst the responses of intersectoral labor reallocation and sectoral shares are foundempirically to decline over time, the share of non tradables increases more in countries where the degree of labor mobility across sectors is higher. To account for our evidence, we develop an open economy version of the neoclassical model with tradables and non tradables. Our quantitative analysis shows that the open economy model is successful in replicating the responses of sectoral output shares to a fiscal shock, as long as we allow for a difficulty in reallocating labor across sectors along with adjustment costs to capital accumulation. Finally, calibrating the model to country-specific data, we are able to generate a cross-country relationship between the degree of labor mobility and the responses of sectoral output shares which is similar to that in the data.

AB - Our paper investigates the impact of government spending shocks on relative sector size and contrasts the effects across countries. Using a panel of sixteen OECD countries over the period 1970-2007, our VAR evidence shows that a rise in government consumption i) increases the share of non tradables in labor and real GDP while lowering the share of tradables, and ii) causes a significant increase in non traded wages relative to traded wages. While the first finding reveals that the non traded sector is more intensive in the government spending shock and experiences a labor inflow that increases its relative size, the second finding suggests the presence of labor mobility costs preventing wage equalization across sectors. These labor mobility costs appear to play a key role in determining changes in relative sector size across time and space. Whilst the responses of intersectoral labor reallocation and sectoral shares are foundempirically to decline over time, the share of non tradables increases more in countries where the degree of labor mobility across sectors is higher. To account for our evidence, we develop an open economy version of the neoclassical model with tradables and non tradables. Our quantitative analysis shows that the open economy model is successful in replicating the responses of sectoral output shares to a fiscal shock, as long as we allow for a difficulty in reallocating labor across sectors along with adjustment costs to capital accumulation. Finally, calibrating the model to country-specific data, we are able to generate a cross-country relationship between the degree of labor mobility and the responses of sectoral output shares which is similar to that in the data.

KW - Fiscal policy

KW - Labor mobility

KW - Investment

KW - Current account

KW - Non tradables

KW - Sectoral wages

M3 - Working paper

T3 - Economics Working Paper Series

BT - Imperfect mobility of labor across sectors and fiscal transmission

PB - Lancaster University, Department of Economics

CY - Lancaster

ER -