Department of Economics Seminar Series – Bessy Liao from UCI

The Economics Department Seminar Series continues with the second talk of the series. The talk will be held in-person this Friday, September 29 from 11:00am-12:00pm in SSPA-204. Our speaker will be PhD Candidate Bessy Liao from UC Irvine who will present a paper entitled “The Great Divergence under Frictional Labor Markets“.

Bessy’s talk will analyze the effects that labor markets have on where high-skilled and low-skilled workers choose to live (rural or urban areas), and how that correlates with inequalities across both groups. Please see the abstract below for more details:

“High-wage and high-rent cities feature a growing share of high-skill workers. To understand the effects frictional labor markets have on the geographic allocation of high- and low-skill workers and hence the implications for welfare inequality, this paper develops a spatial equilibrium model with frictional labor markets where workers of different skill levels share a common housing market. The model generates an equilibrium where locations with higher real wages feature lower unemployment rates for both skill groups. I calibrate the model to the US economy between 2005-2019 and find that labor force is inefficiently small in high-wage high-rent locations and the share of high-skill workers in those places is inefficiently high compared to the planner’s solution. The inefficiencies arise from the “misdirected output” externality and “overloading” externality. Taking the model to its frictionless limit suggests that frictions in the labor market moderate the divergence. Policy experiments that encourage low-skill workers to relocate to high-wage locations improve aggregate welfare.“