Technology shocks, labor mobility and aggregate fluctuations

We provide evidence on the dynamic behavior of net labor flows across US states in response to a positive technology shock. Technology shocks are identified as disturbances that increase relative state productivity in the long run for 226 state-pairs encompassing 80 percent of labor flows across US states in the period 1976 2008. The data suggest heterogeneous responses of both employment and net labor flows across states conditional on a positive technology shock. We build a two region dynamic stochastic general equilibrium (DSGE) model with endogenous labor mobility and asymmetric shocks accounting for this evidence. We calibrate the model economy consistently with the observed differences in the degree of nominal rigidities across states and show that we replicate the different patterns of the responses in employment and net labor flows across states following a technology shock. JEL Classification: E24, E32, J61