Skill Portability and Spatial Adjustment: The Case of the EU Cohesion Policy

Abstract

We show that skill portability, the transferability of workers’ knowledge across sectors, shapes regional growth and the gains from place-based policy. In our framework, portable skills encourage human-capital investment and help workers adjust to sectoral decline by changing sectors, either locally or in another region. Combining skill requirements from historical job advertisements with European labor-market data, we document that workers move less between dissimilar sectors and that regions with less portable workforces experience slower employment growth. We embed this mechanism in a dynamic spatial model and evaluate a reallocation of EU Cohesion Policy funds toward sectors accessible to local workers. With every region’s annual budget unchanged, European real output rises by 1.9 percent and workers’ real earnings by 1.2 percent in 2019. Average output gains in initially poorer regions are more than twice those in richer regions.