sector of origin possesses the capabilities that are required in the sector of destination. In the PS literature, proximity is defined on the basis of revealed comparative advantage (RCA). We also draw on RCA-related data in the illustrative application in this paper even though we do not consider this approach as ideal and, in the conclusions, discuss other options for future research.<sup>2</sup> The efficiency losses due to reallocation are related to a distinction between labor quantities in physical and efficiency units. For labor that stays within its sector of origin (or moves to a sector considered to be in the same location as it requires the same worker capabilities), physical and efficient labor quantities are identical and the proximity is equal to 1. If labor moves to a different location (i.e., its proximity is less than 1), the efficient labor quantity received in the sector of destination falls short of the efficient (and physical) quantity of labor that departs from the sector of origin – the lower the proximity, the larger this shortfall. Profitmaximizing producers consider the gap between efficient and physical labor in their hiring decisions. They equalize payments to labor measured in efficiency units, as a result being willing to pay a higher wage (per physical unit) for a worker who already is in the sector, due to his/her higher degree of efficiency compared to a worker from a different location. This treatment of wages echoes the writings of Alfred Marshall, who coined and used the efficiency wage term to refer to wages that reflect the exertion of ability and efficiency in work. He argued that competition tends to equalize efficiency wages as opposed to the wages per time unit, which differ across workers with different levels of efficiency (Marshall 1920, Book VI, Chapter III); this is the same outcome that prevails at equilibrium in our labor mobility model.<sup>3</sup> Given that proximities between sectors fall along a continuum, labor segmentation also appears along a continuum as opposed to the common dichotomy of treating labor in different sectors as belonging either to the same segment or to different, separate segments. However, the two extremes of this common dichotomy can still be captured as the special cases with all sectors having proximities of 1 or very low proximities for the cases of belonging to the same and fully separate segments, respectively. In the latter case, migration would not take place due to the fact that the (efficiency-based) wage offered in the destination sector would fall short of the wage in the sector of origin. In other respects, our approach is consistent with alternative, common treatments of other 2 Strict adherence to the PS approach to the calculation of proximities would have the drawback of excluding values that differ across labor types (since PS proximities are singledimensional, defined by sector) or are asymmetric (since the PS proximity or distance from activity _a_ to activity _a’_ is the same as the one from _a’_ to _a_ ).

3 This usage deviates from that of modern efficiency-wage theories with links between wages and worker productivity, which may give raise to wage setting above market equilibrium. For a survey, see Weiss (1991).

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