Heterogeneous Agents Dynamic Spatial General Equilibrium

Abstract

I develop a dynamic model of migration and labor market choice with incomplete markets and uninsurable income risk to quantify the effects of international trade on workers' employment reallocation, earnings, and wealth. Macroeconomic conditions in different labor markets and idiosyncratic shocks shape agents' labor market choices, consumption, earnings, and asset accumulation over time. Despite the rich heterogeneity, the model is highly tractable as the optimal consumption, labor supply, capital accumulation, and migration and reallocation decisions of individual workers across different markets have closed-form expressions and can be aggregated. I study the asymmetric impact of international trade on the evolution of employment, earnings, and wealth, and decompose the frictions workers face to reallocate across U.S. sectors and regions into those with a transitory effect and those with long-lasting consequences.