Regional Mismatch and Labor Reallocation in an Equilibrium Model of Migration

This paper examines the importance of regional labor reallocation for unemployment and studies the link between inter-regional mobility and reallocation. I construct a multi-region economy with segmented labor markets, endogenously determined regional house prices, and limited worker mobility, and structurally estimate it using state level data for the U.S. The estimated model can account for the comovements of relative house prices and unemployment with gross out- and in-migration observed in a panel of U.S. states. The estimation reveals large reallocation barriers across local labor markets in the form of imperfect directed migration, relative house price differences compensating for labor market differences, and a high moving cost for unemployed workers. These reallocation barriers dampen the response of individual migration decisions to regional labor market differences and contribute to regional mismatch and to shifts in the U.S. Beveridge curve. I apply this framework to understand the reallocation effects of the recent housing bust in the U.S.