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Unemployment and endogenous reallocation over the business cycle

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  • Carrillo-Tudela, Carlos
  • Visschers, Ludo

Abstract

We build an analytically and computationally tractable stochastic equilibrium model of unemployment in heterogeneous labor markets. Facing search frictions within markets and reallocation frictions between markets, workers endogenously separate from employment and endogenously reallocate between markets, in response to changing aggregate and local conditions. Empirically, using the 1986-2008 SIPP panels, we document the occupational mobility patterns of the unemployed, finding notably that occupational change of unemployed workers is procyclical. The heterogeneous-market model yields highly volatile countercyclical unemployment, and is simultaneously consistent with procyclical reallocation, countercyclical separations and a negatively- sloped Beveridge curve. Moreover, the model exhibits unemployment duration dependence, which (when calibrated to long-term averages) responds realistically to the business cycle, creating substantial longer-term unemployment in downturns. Finally, the model is also consistent with different employment and reallocation outcomes as workers gain experience in the labor market, on average and over the business cycle.

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Paper provided by Institute for Social and Economic Research in its series ISER Working Paper Series with number 2013-01.

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Date of creation: 10 Jan 2013
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Publication status: published
Handle: RePEc:ese:iserwp:2013-01

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Citations

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Cited by:
  1. Carlos Carillo-Tudela (University of Essex, CESifo and IZA ) & Bart Hobijn (Federal Reserve Bank of San Francisco) & Powen She (University of Essex) & Ludo Visschers (The University of Edinburgh, Univ, 2014. "The Extent and Cyclicality of Career Changes: Evidence for the UK," ESE Discussion Papers 246, Edinburgh School of Economics, University of Edinburgh.
  2. Carrillo-Tudela, Carlos & Hobijn, Bart & Visschers, Ludo, 2014. "Career changes decline during recessions," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
  3. Damba Lkhagvasuren & Roy Nitulescu, 2011. "Sectoral Mobility and Unemployment with Heterogeneous Moving Costs," Working Papers, Concordia University, Department of Economics 13003, Concordia University, Department of Economics, revised 14 May 2013.
  4. Jacob Wong, 2012. "Aggregate Reallocation Shocks and the Dynamics of Occupational Mobility and Wage Inequality," School of Economics Working Papers 2012-04, University of Adelaide, School of Economics.
  5. 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.
  6. Régis Barnichon & Andrew Figura, 2010. "Labor market heterogeneity and the aggregate matching function," Economics Working Papers 1395, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2013.
  7. 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].
  8. 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.

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