Mike Elsby

We devise a tractable model of persistent heterogeneity in labor mobility and characterize analytically its implications for dynamic labor market equilibrium. Markets shrink or grow in order of mobility type. Mobile types thus sort into better markets; immobile types are “left behind.” Equilibrium inequality is two-dimensional: markets differ not only in labor market outcomes, but also in mobile-type composition, which is valued by immobile types. Heterogeneous mobility thus amplifies both between- and within-group inequality. Convergence requires closing both cross-sectional gaps, and so labor market dynamics exhibit excess persistence. US census data on local labor market dynamics support these predictions.