Worker Heterogeneity and Labor Market Volatility in Matching Models
AbstractShimer (2005) demonstrated that aggregate productivity shocks in a standard matching model cause fluctuations in key labor market statistics---such as the job-finding rate, the vacancy/unemployment ratio, and the unemployment rate---that are too small by an order of magnitude. This paper shows that when the standard model is extended to allow for worker heterogeneity, it exhibits considerably greater volatility. In the model, marginal workers, whose productivity only slightly exceeds the value of their alternative use of time, constitute a disproportionate share of unemployment on average, and that share rises when aggregate conditions deteriorate. These composition effects cause firms to open fewer vacancies during downturns. (Copyright: Elsevier)
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Bibliographic InfoArticle provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 11 (2008)
Issue (Month): 3 (July)
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Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101
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Find related papers by JEL classification:
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
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