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Worker Heterogeneity and Endogenous Separations in a Matching Model of Unemployment Fluctuations

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  • Mark Bils
  • Yongsung Chang
  • Sun-Bin Kim

Abstract

We model worker heterogeneity in the rents from being employed in a Diamond-Mortensen-Pissarides model of matching and unemployment. We show that heterogeneity, reflecting differences in match quality and worker assets, reduces the extent of fluctuations in separations and unemployment. We find that the model faces a trade-off—it cannot produce both realistic dispersion in wage growth across workers and realistic cyclical fluctuations in unemployment. (JEL D31, E24, E32, J41, J63)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 3 (2011)
Issue (Month): 1 (January)
Pages: 128-54

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Handle: RePEc:aea:aejmac:v:3:y:2011:i:1:p:128-54

Note: DOI: 10.1257/mac.3.1.128
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References

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  1. Yongsung Chang & Sun-Bin Kim, 2007. "Heterogeneity and Aggregation: Implications for Labor-Market Fluctuations," American Economic Review, American Economic Association, American Economic Association, vol. 97(5), pages 1939-1956, December.
  2. Makoto Nakajima, 2006. "Business Cycles in the Equilibrium Model of Labor Search and Self-Insurance," Computing in Economics and Finance 2006, Society for Computational Economics 426, Society for Computational Economics.
  3. Mark Bils & Yongsung Chang & Sun-Bin Kim, 2007. "Comparative Advantage in Cyclical Unemployment," Discussion Paper Series 0713, Institute of Economic Research, Korea University.
  4. Michael Pries, 2008. "Worker Heterogeneity and Labor Market Volatility in Matching Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 664-678, July.
  5. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1692-1706, September.
  6. Woodcock, Simon, 2006. "Match Effects," MPRA Paper 154, University Library of Munich, Germany.
  7. Krusell, Per & Mukoyama, Toshihiko & Sahin, Aysegul, 2009. "Labor-Market Matching with Precautionary Savings and Aggregate Fluctuations," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7429, C.E.P.R. Discussion Papers.
  8. Bruce Fallick & Charles A. Fleischman, 2004. "Employer-to-employer flows in the U.S. labor market: the complete picture of gross worker flows," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2004-34, Board of Governors of the Federal Reserve System (U.S.).
  9. Michael R. Darby & John C. Haltiwanger & Mark W. Plant, 1985. "Unemployment-Rate Dynamics and Persistent Unemployment Under Rational Expectations," NBER Working Papers 1558, National Bureau of Economic Research, Inc.
  10. Melvyn Cole & Randall Wright, . "A Dynamic Equilibrium Model of Search, Bargaining, and Money," CARESS Working Papres, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences 97-9, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  11. James Costain & Michael Reiter, 2005. "Business Cycles, Unemployment Insurance and the Calibration of Matching Models," Working Papers 215, Barcelona Graduate School of Economics.
  12. Yongsung Chang & Sun-Bin Kim, 2003. "From individual to aggregate labor supply : a quantitative analysis based on a heterogeneous agent macroeconomy," Working Paper, Federal Reserve Bank of Richmond 03-05, Federal Reserve Bank of Richmond.
  13. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2007. "Frictional Wage Dispersion in Search Models: A Quantitative Assessment," NBER Working Papers 13674, National Bureau of Economic Research, Inc.
  14. Pedro Silos & Enchuan Shao, 2007. "Uninsurable Individual Risk and the Cyclical Behavior of Unemployment and Vacancies," 2007 Meeting Papers, Society for Economic Dynamics 420, Society for Economic Dynamics.
  15. Baker, Michael, 1992. "Unemployment Duration: Compositional Effects and Cyclical Variability," American Economic Review, American Economic Association, American Economic Association, vol. 82(1), pages 313-21, March.
  16. Bjoern Bruegemann & Giuseppe Moscarini, 2010. "Rent Rigidity, Asymmetric Information, and Volatility Bounds in Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 575-596, July.
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