Labor Market Frictions and Moving Costs of the Employed and Unemployed

Abstract

Search frictions and switching costs may grant monopsony power to incumbent employers by reducing workers’ outside options. This paper examines the role of labor market frictions and moving costs in explaining worker flows across US labor markets. Using data on non-college-educated workers from the Survey of Income and Program Participation (SIPP), I estimate a dynamic model of job search and location choice. I find that moving costs are substantial and that labor market frictions primarily inhibit the employed. Reducing these frictions would result in a higher wage elasticity of labor supply to the firm and could reduce employer monopsony power.