Matching and sorting across regions

Abstract

This article measures the effects of workers’ mobility across regions characterised by different productivity levels through the lens of a search and matching model with heterogeneous workers and firms estimated using administrative data. In an application to Italy, the model estimates imply that the relocation of workers to the most productive region boosts employment and output at the country level, reduces inequality and widens productivity gaps. There is an interplay between the sorting of workers across regions and across firms, and migration mitigates the frictions caused by worker–firm sorting. The model allows for the evaluation of general equilibrium effects of place-based policies towards the least productive region. Subsidising the creation of high-technology jobs reduces migration substantially while increasing employment and productivity. In contrast, subsidies for hiring unemployed or high-skill migrants imply indirect effects that limit policy effectiveness.