Job Amenity Shocks and Labor Reallocation, with Sadhika Bagga, Lukas Mann and Aysegül Sahin

We introduce aggregate shocks to workers’ value of job amenities in a frictional equilibrium model of the labor market with on-the-job search, where the job creation cost is sunk and quits trigger vacancies.

We examine how key labor market indicators
respond to this shock: when the valuation of the amenity is heterogeneous in the population, labor reallocation ensues.

A calibrated version of the model can quantitatively account for many peculiar traits of the post-pandemic labor market recovery
through three aggregate shocks: a temporary fall in productivity to account for the short, but sharp, downturn; a decline in the willingness to work; and, crucially, a persistent increase in the value that workers put on job amenities. Cross-sectoral patterns of vacancies, quit rates, job-filling rates, and wages —where sectors are ranked by the share of teleworkable jobs— offer support to the view that the key amenity in
question is the ability to work remotely.