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The Network Origin of Slow Labor Reallocation

Paris School of Economics - PARIS - 2022

There is a growing concern that worker reallocation after a trade shock, i.e. the movement of workers from declining to expanding sectors, might be quite slow. What determines the speed of the reallocation process? In this project, I study how occupational mobility frictions affect the process of worker reallocation. First, I will identify occupational mobility frictions using the ROME database and represent them as a network, where nodes are occupations and edges represent possible occupational transitions. Second, I will explore how the structure of the occupational network – and in particular the presence of bottlenecks – affected the flows of workers across occupations after a trade liberalization episode (the “China shock”). Third, I will extend the canonical search and matching model of the labor market with an occupational network and calibrate it on French data in order to run counterfactual analysis. This work has key implications for the targeting of employment policies.