Economic growth through worker reallocation : the role of knowledge spillovers

An establishment can improve its productivity by hiring workers from more productive establishments. Then, how important is worker reallocation for aggregate productivity growth? To study this question, I develop a general equilibrium model where knowledge transmits as workers reallocate from one job to another. The calibrated model suggests that the knowledge diffusion mechanism increases the aggregate productivity growth by 0.14 percentage points and enhances welfare. Additionally, the mechanism significantly amplifies the adverse effect of firing costs on aggregate outcomes.