FLEXIBILITY, INVESTMENT, AND GROWTH

This paper proposes a model of growth with diversifiable microeconomic uncertainty and uses it to study the efficiency costs and distributio nal effects of obstacles to labor mobility. Labor mobility costs reduc e private and social returns to irreversible investment decisions, dec rease the speed of capital accumulation, and lower a representative ag ent's welfare. They can however shift income distribution towards 'wor kers', or individuals who own no accumulated factors of production and have no incentives to save any portion of their income flows in balan ced-growth equilibrium. This may help explain why labor's political re presentatives often favor provisions which decrease socially desirable labor mobility.