Productivity Spillovers Through Labor Mobility in Search Equilibrium
60 Pages Posted: 11 Dec 2015 Last revised: 12 Jan 2017
Date Written: January 11, 2017
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: Suggested Citation