Essays on Inter-sectoral Labour Mobility and the Wage Gap

Abstract

Wage gaps between industries have increased over the past few decades in the US. Nevertheless, labour clusters in the low-wage sector, which is puzzling. This thesis explores a series of questions to seek the underlying factors: (i) Are there any frictions in inter-sectoral labour mobility? (ii) If so, can labour mobility frictions account for labour market distortions? (iii) What is the primary source of frictions?

Chapter 1 corroborates empirical evidence for the existence of labour mobility frictions using US micro-data: (i) The unexplained wage gap has increased, (ii) the flow of labour from the high- to the low-wage sector has risen but has declined in the reverse direction, (iii) the worker's wage significantly increases only by moving to the high-wage sector, but such mobility does not happen often, and (iv) the pecuniary cost of moving to a new sector has increased.

Chapter 2 evaluates the role of mobility frictions in labour market dynamics. While the neoclassical model without frictions cannot alone explain the labour market distortions, a multi-sector model embedded with frictions can illustrate that barriers to labour mobility act as a decisive factor in determining labour clustering and the wage gap. The main finding is that the degree of mobility frictions has increased, thus being much higher after 2000 than it was in the 1990s. As a result, the wage disparity and labour misallocation have worsened and non-trivial economic losses have occurred.

Chapter 3 demonstrates that differential job matching efficiency between sectors is a crucial source of labour mobility frictions. Importantly, differing matching efficiency stems from sectoral productivity gap. A two-sector search and matching model can satisfactorily explain the labour market distortions by showing that the productivity-driven, differential matching efficiency triggers the wage gap and labour misallocation.