Eugenia Gonzales-Aguado (Toulouse School of Economics) 17.11.2021

This paper studies the macroeconomic effects of internal migration in an economy with labor market frictions and quantifies its role in mitigating asymmetric shocks. Labor mobility is viewed as an important mechanism to stabilize the economy from regional shocks in currency unions. But this view ignores the equilibrium effects of worker mobility in the presence of search frictions. I show how labor search frictions can account for the observed procyclicality of migration in the United States. Using microdata, I document that job-to-job transitions account for most of the interstate movements. However, during downturns, there is a significant increase in the relocation of unemployed workers across states. Procyclicality of migration is then accounted mostly by procyclicality of job-to-job transitions. I develop a general equilibrium model with aggregate business cycles and search frictions that can capture the observed employment transitions for workers moving across states.