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Seminar: Sebastian Heise (NY Fed)
November 13, 2019 @ 1:30 pm - 3:00 pm
Title: Workers’ Home Bias and Spatial Wage Gaps: Lessons from the Enduring Divide between East and West Germany (joint with Tommaso Porzio) (link: paper)
Abstract: Workers’ birth-place shapes their labor market prospects: only few find a job elsewhere, and of those, a large fraction moves back home. Such home bias can have important aggregate effects if regions differ in their productivity. Moreover, understanding the drivers of the bias is paramount to shape regional policy. In this paper, we use Germany as a laboratory to shed light on the drivers and consequences of home bias. We first document, using matched employer employee data, that Germans born in the East enjoy large wage gains when moving West, but nonetheless they do so rarely: they mostly climb a local job ladder, which keeps them trapped in lower wage rms. We then build a tractable framework with worker reallocation across firms and space to structurally interpret the evidence. We show that East-born workers value one dollar earned in the West only as much as 74 cents earned in the East. They are also four times more likely to receive a job o er from the East, and are on average less skilled, but their skills are equally valuable in East and West. Counterfactuals show that removing either of the sources of home bias have sharp, but distinct, effects on aggregate wages and workers’ utility.