Productivity Spillovers Through Labor Mobility in Search Equilibrium

60 Pages Posted: 11 Dec 2015 Last revised: 12 Jan 2017

See all articles by Tom-Reiel Heggedal

Tom-Reiel Heggedal

BI Norwegian Business School

Espen R. Moen

BI Norwegian Business School; Centre for Economic Policy Research (CEPR)

Edgar Preugschat

Technical University of Dortmund

Multiple version iconThere are 2 versions of this paper

Date Written: January 11, 2017

Abstract

This paper proposes an explicit model of spillovers through labor flows in a framework with search frictions. Firms can choose to innovate or to imitate by hiring a worker from a firm that has already innovated. We show that if innovating firms can commit to long-term wage contracts with their workers, productivity spillovers are fully internalized. If firms cannot commit to long-term wage contracts, there is too little innovation and too much imitation in equilibrium. Our model is tractable and allows us to analyze welfare effects of various policies in the limited commitment case. We find that subsidizing innovation and taxing imitation improves welfare. Moreover, allowing innovating firms to charge quit fees or rent out workers to imitating firms also improves welfare. By contrast, non-pecuniary measures like restrictions on mobility, interpreted as reducing matching efficiency between imitating firms and workers from innovating firms, always reduce welfare.

Keywords: Efficiency, innovation, imitation, productivity, search frictions, spillovers, worker flows

JEL Classification: J63, J68, 031, 038

Suggested Citation

Heggedal, Tom-Reiel and Moen, Espen R. and Preugschat, Edgar, Productivity Spillovers Through Labor Mobility in Search Equilibrium (January 11, 2017). Available at SSRN: https://ssrn.com/abstract=2701785 or http://dx.doi.org/10.2139/ssrn.2701785

Tom-Reiel Heggedal

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Espen R. Moen

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Edgar Preugschat (Contact Author)

Technical University of Dortmund ( email )

D-44221 Dortmund
Germany

HOME PAGE: http://https://sites.google.com/site/epreugschat/

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