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

67 Pages Posted: 21 May 2019 Last revised: 22 Apr 2020

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 examine the long-term effects of resettling 11% of the Finnish population during World War II. Entire rural communities were moved to locations that resembled the origin areas and displaced farmers were given farms similar to those they had lost. Despite this policy of reconstructing the pre-war situation, we find that forced migration increased the likelihood of leaving agriculture, which in turn led to a large increase in long-term income among the displaced rural population. By contrast, being displaced decreased the income of the resettled urban population. We examine the extent to which these effects can be explained by the impact of forced migration on farm quality, education, networks, learning, and discrimination, but find only limited support for the relevance of these mechanisms. Instead, we argue that a Roy model augmented with habit formation for residential location provides the most compelling rationalization for these results.

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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