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Worker Flows, Job Flows and Unemployment in a Matching Model

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Author Info
Simon Burgess
Helene Turon ()

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Abstract

Standard matching models of unemployment assume that workers and job flows are identical. This is in stark contrast to empirical evidence that job flows in fact only account for a fraction of worker ßows, that unemployment exits only account for a fraction of hires and that these fractions vary over the cycle. In this paper, we develop and calibrate a model based on the Mortensen and Pissarides approach but that emphasises this issue. We show that this matters - that it has very different implications for our view of unemployment dynamics. The key features of our model relate to the search options of the worker, and the job creation decision by firms. We allow workers to search whilst employed, and firms to re-advertise jobs that have been quit from. This leads us to use a different job creation process, whereby potential vacancies, or job 'ideas', arise at a finite rate per period over a range of idiosyncratic productivities. In the standard setting, there is an unlimited supply of potential vacancies at the top idiosyncratic productivity. The main results are as follows. First, the presence of on-the-job search has a substantial impact on labour market equilibrium, whereby equilibrium unemployment is lower and exhibits a higher turnover rate. On-the-job search renders the unemployment inflow rate more sensitive to the cycle: in all cases, the inflow rate is found to be more cyclically sensitive than the outflow rate, suggesting that most unemployment dynamics occur through this channel. This confrms empirical results for Great Britain (Burgess and Turon (2005)). Second, our model offers some insight into a (two-way) relationship between job-to-job flows, which drives the difference between worker and job flows, and the extent of wage dispersion. More wage dispersion increases the incentive to search on-the-job and more on-the-job search widens the range of viable productivities and leads to lower wages at the bottom of the wage distribution, thereby increasing wage dispersion. Third, changes in the model's exogenous parameters impact unemployment to a considerable degree by changing the level of employed job search.

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Publisher Info
Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 05/572.

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Length: 45 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:bri:uobdis:05/572

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Related research
Keywords: Unemployment; on-the-job search; worker flows; job flows; matching.;

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Find related papers by JEL classification:
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  5. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November. [Downloadable!] (restricted)
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  6. Lane, Julia & Stevens, David & Burgess, Simon, 1996. "Worker and job flows," Economics Letters, Elsevier, vol. 51(1), pages 109-113, April. [Downloadable!] (restricted)
  7. Den Haan, Wouter & Haefke, Christian & Ramey, Gary, 2001. "Shocks and Institutions in a Job Matching Model," CEPR Discussion Papers 2970, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Wouter J. den Haan & Garey Ramey & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June. [Downloadable!] (restricted)
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  9. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March. [Downloadable!]
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  11. Balmaseda, Manuel & Dolado, Juan J & Lopez-Salido, J David, 2000. "The Dynamic Effects of Shocks to Labour Markets: Evidence from OECD Countries," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 3-23, January.
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  20. Boeri, Tito, 1999. "Enforcement of employment security regulations, on-the-job search and unemployment duration," European Economic Review, Elsevier, vol. 43(1), pages 65-89, January. [Downloadable!] (restricted)
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  21. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
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  23. Davis, Steven J & Haltiwanger, John C, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 819-63, August. [Downloadable!] (restricted)
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  24. Andrés Fuentes, 2002. "On-the-Job Search and the Beveridge Curve," IMF Working Papers 02/37, International Monetary Fund.
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  26. James S. Costain & Michael Reiter, 2003. "Business Cycles, Unemployment Insurance, and the Calibration of Matching Models," Economics Working Papers 872, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2006. [Downloadable!]
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  27. Burgess, Simon M, 1993. "A Model of Competition between Unemployed and Employed Job Searchers: An Application to the Unemployment Outflow Rate in Britain," Economic Journal, Royal Economic Society, vol. 103(420), pages 1190-204, September. [Downloadable!] (restricted)
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  30. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Simon Burgess & Helene Turon, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies – A Comment," Bristol Economics Discussion Papers 05/573, Department of Economics, University of Bristol, UK. [Downloadable!]
  2. Francesco Zanetti, . "Labour market institutions and aggregate fluctuations in a search and matching model," Bank of England working papers 333, Bank of England. [Downloadable!]
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