Sectoral Mobility and Unemployment with Heterogeneous Moving Costs

A simple equilibrium model of sectoral reallocation is developed in order to study the impact of heterogeneous moving costs on unemployment. The model blends key elements of standard sectoral reallocation theory and the competitive search model. Heterogeneity in moving costs is introduced via mobile and immobile workers. According to the model, the share of mobile workers lowers aggregate unemployment. The model reveals that when labor mobility is driven by an idiosyncratic sector-worker match effect, the share of mobile workers raises the unemployment rate of immobile workers. However, when labor mobility is driven by a sectoral level aggregate disturbance, mobile workers can have a non-monotonic, but globally negative impact on the unemployment rate of immobile workers.