Habit Formation and the Misallocation of Labor: Evidence from Forced Migrations

56 Pages Posted: 21 May 2019

See all articles by Matti Sarvimäki

Matti Sarvimäki

Aalto University - Department of Economics; Government of the Republic of Finland - VATT Institute for Economic Research

Roope Uusitalo

Uppsala University - Department of Economics; IFAU - Institute for Labour Market Policy Evaluation; Government of the Republic of Finland - VATT Institute for Economic Research; IZA Institute of Labor Economics

Markus Jäntti

Stockholm University

Date Written: March 27, 2019

Abstract

We present evidence suggesting that attachment to a place is an important impediment to mobility. Our research design is based on the resettlement of 11% of Finns after World War II. Farmers were moved to other parts of Finland and given similar farms as the ones they had lost. We find that the resettlement increased their later likelihood to leave agriculture and to move to urban areas. It also increased their long-term income and education. By contrast, forced migration decreased income of the resettled urban population. We rationalize these findings with a Roy model augmented with habit formation for residential location.

JEL Classification: J61, O15, N34

Suggested Citation

Sarvimäki, Matti and Uusitalo, Roope and Jäntti, Markus, Habit Formation and the Misallocation of Labor: Evidence from Forced Migrations (March 27, 2019). Available at SSRN: https://ssrn.com/abstract=3361356 or http://dx.doi.org/10.2139/ssrn.3361356

Matti Sarvimäki (Contact Author)

Aalto University - Department of Economics ( email )

PO Box 1210
FI-00101 Helsinki
Finland

HOME PAGE: http://www.aalto-econ.fi/sarvimaki

Government of the Republic of Finland - VATT Institute for Economic Research ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

Roope Uusitalo

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden

IFAU - Institute for Labour Market Policy Evaluation

Box 513
751 20 Uppsala
Sweden

Government of the Republic of Finland - VATT Institute for Economic Research

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Markus Jäntti

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

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