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Heterogeneous workers, optimal job seeking, and aggregate labor market dynamics

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  • Brendan Epstein

Abstract

In the United States, the aggregate vacancy-unemployment (V/U) ratio is strongly procyclical, and a large fraction of its adjustment associated with changes in productivity is sluggish. The latter is entirely unexplained by the benchmark homogeneous-agent model of equilibrium unemployment theory. I show that endogenous search and worker-side horizontal heterogeneity in production capacity can be important in accounting for this propagation puzzle. Driven by differences in unemployed and on-the-job seekers' search incentives, the probability that any given firm with a job opening matches with a worker endowed with a comparative advantage in that job exhibits a stage of procyclical slow-moving adjustment. Consequently, so do the expected gains from posting vacancies and, hence, the V/U ratio. The model has channels through which the majority of both the V/U ratio's sluggish-adjustment properties and its elasticity with respect to output per worker can be accounted for.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1053.

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Date of creation: 2012
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Handle: RePEc:fip:fedgif:1053

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  1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  2. Marcus Hagedorn & Iourii Manovskii, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," 2005 Meeting Papers 460, Society for Economic Dynamics.
  3. Dolado, Juan J. & Jansen, Marcel & Jimeno, Juan F., 2003. "On-the-Job Search in a Matching Model with Heterogenous Jobs and Workers," IZA Discussion Papers 886, Institute for the Study of Labor (IZA).
  4. Mortensen, Dale T. & Nagypál, Éva, 2005. "More on Unemployment and Vacancy Fluctuations," IZA Discussion Papers 1765, Institute for the Study of Labor (IZA).
  5. 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.
  6. Andri Chassamboulli, 2010. "Cyclical Upgrading of Labor and Employment Differences across Skill Groups," University of Cyprus Working Papers in Economics 14-2010, University of Cyprus Department of Economics.
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