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Unemployment and Endogenous Reallocation over the Business Cycle

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  • Carlos Carrillo-Tudela
  • Ludo Visschers

Abstract

This paper studies unemployed workers’ decisions to change occupations, and their impact on fluctuations in aggregate unemployment and its underlying duration distribution. We develop an analytically and computationally tractable stochastic equilibrium model with heterogenous labor markets. In this model three different types of unemployment arise: search, rest and reallocation unemployment. We document new evidence on unemployed workers’ gross occupational mobility and use it to calibrate the model. We show that rest unemployment is the main driver of unemployment fluctuations over the business cycle and causes cyclical unemployment to be highly volatile. The resulting unemployment duration distribution generated by the model responds realistically to the business cycle, creating substantial longer-term unemployment in downturns. Finally, rest unemployment also makes our model simultaneously consistent with procyclical occupational mobility of the unemployed, countercyclical job separations into unemployment and a negatively-sloped Beveridge curve.

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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we1410.

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Date of creation: Apr 2014
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Handle: RePEc:cte:werepe:we1410

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Keywords: Unemployment; Business Cycle; Rest; Search; Occupational Mobility;

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Citations

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Cited by:
  1. Regis Barnichon & Andrew Figura, 2013. "Labor Market Heterogeneity and the Aggregate Matching Function," Working Papers 727, Barcelona Graduate School of Economics.
  2. Bauer, Anja, 2013. "Mismatch unemployment : evidence from Germany 2000-2010," IAB Discussion Paper 201310, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  3. Carrillo-Tudela, Carlos & Hobijn, Bart & Visschers, Ludo, 2014. "Career changes decline during recessions," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco.
  4. Plamen Nenov, 2013. "Regional Mismatch and Labor Reallocation in an Equilibrium Model of Migration," 2013 Meeting Papers, Society for Economic Dynamics 565, Society for Economic Dynamics.
  5. Damba Lkhagvasuren & Roy Nitulescu, 2013. "Sectoral Mobility and Unemployment with Heterogeneous Moving Costs," Journal of Labor Research, Springer, Springer, vol. 34(3), pages 339-358, September.
  6. Jacob Wong, 2012. "Aggregate Reallocation Shocks and the Dynamics of Occupational Mobility and Wage Inequality," School of Economics Working Papers, University of Adelaide, School of Economics 2012-04, University of Adelaide, School of Economics.
  7. Maximiliano Dvorkin, 2013. "Sectoral Shocks, Reallocation and Unemployment in a Model of Competitive Labor Markets," 2013 Meeting Papers, Society for Economic Dynamics 1229, Society for Economic Dynamics.

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