Aggregate Reallocation Shocks, Distance and the Dynamics of Occupational Mobility

Jacob Wong | University of Adelaide 

This paper presents a model of occupational choice with aggregate shocks in the spirit of the celebrated Lucas-Prescott island model.  Occupations (or islands) are linked together in a manner that implies that the greater the distance between any two occupations, the more dissimilar the tasks required by the two occupations.  The greater the distance between two occupations, the greater the cost of switching between them.  Aggregate reallocation shocks change the identity of the most productive occupation but the productivity of any occupation that is a given distance relative to the most productive occupation retains some structure over time.  These shocks can be used to think about changes to the relative demand for output produced by various occupations or as technological innovations that favour a certain set of occupations relative to those of other occupations.  Costly occupational switching and general equilibrium effects generate a nuanced interplay between the distribution of workers across occupations and the distribution of wages paid across occupations.