In 1988, the wage distribution in East Germany was much more compressed than in West Germany or the U.S. Since the collapse of Communism and unification with West Germany, however, the wage structure in eastern Germany has changed considerably. In particular, wage variation has increased, the...

We develop a frictional labor market model with multiple regions and heterogeneous firms to study how frictions impeding labor mobility across space affect the joint allocation of labor across firms and regions. Bringing the model to matched employer-employee data from Germany, we find that...