Matti Sarvimäki, Aalto University: Habit Formation and the Misallocation of Labor: Evidence from Forced Migrations
Department seminar. Matti Sarvimäki is a Research Fellow at Aalto University and an Associate Research Professor at the VATT Institute for Economic Research. He will present a paper entitled "Habit Formation and the Misallocation of Labor: Evidence from Forced Migrations", co-authored by Roope Uusitalo, and Markus Jäntti.
We examine the impacts of resettling 11% of the Finnish population after WWII. Farmers were given land and assistance to continue farming in areas resembling the origin regions. Nevertheless, a quarter of a century later, they were 10–16 percentage points more likely to hold a non-agricultural job and earned 11–28% more than plausible control groups. These effects suggest that farmers could increase their long-term income by 70–80% by leaving agriculture. Yet, almost three quarters of the non-displaced farmers stayed in their farms. We rationalize these findings with a simple habit formation model and provide further evidence supporting it.
Host: Manudeep Bhuller