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Separations, Sorting and Cyclical Unemployment

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  • Mueller, Andreas I.

    ()
    (Columbia University)

Abstract

This paper establishes a new fact about the compositional changes in the pool of unemployed over the U.S. business cycle and evaluates a number of theories that can potentially explain it. Using micro-data from the Current Population Survey for the years 1962-2011, it documents that in recessions the pool of unemployed shifts towards workers with high wages in their previous job. Moreover, it shows that these changes in the composition of the unemployed are mainly due to the higher cyclicality of separations for high-wage workers, and not driven by differences in the cyclicality of job-finding rates. A search-matching model with endogenous separations and worker heterogeneity in terms of ability has difficulty in explaining these patterns, but an extension of the model with credit-constraint shocks does much better in accounting for the new facts.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6849.

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Length: 47 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6849

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Related research

Keywords: sorting; unemployment; business cycles; search-matching; vacancies;

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References

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  1. Michael Pries, 2008. "Worker Heterogeneity and Labor Market Volatility in Matching Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 664-678, July.
  2. Peter Gottschalk, 2002. "Downward nominal wage flexibility: real or measurement error?," Boston College Working Papers in Economics, Boston College Department of Economics 534, Boston College Department of Economics.
  3. Lown, Cara & Morgan, Donald P., 2004. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," SIFR Research Report Series, Institute for Financial Research 27, Institute for Financial Research.
  4. Haefke, Christian & Sonntag, Marcus & van Rens, Thijs, 2013. "Wage rigidity and job creation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 60(8), pages 887-899.
  5. Bils, Mark & Chang, Yongsung & Kim, Sun-Bin, 2012. "Comparative advantage and unemployment," Journal of Monetary Economics, Elsevier, Elsevier, vol. 59(2), pages 150-165.
  6. Michael W. Elsby & Ryan Michaels & Gary Solon, 2007. "The Ins and Outs of Cyclical Unemployment," NBER Working Papers 12853, National Bureau of Economic Research, Inc.
  7. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(5), pages 867-896, October.
  8. Toshihiko Mukoyama & Aysegul Sahin, 2005. "Costs of Business Cycles for Unskilled Workers," Working Papers, Concordia University, Department of Economics 05002, Concordia University, Department of Economics.
  9. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1692-1706, September.
  10. Brigitte C. Madrian & Lars John Lefgren, 1999. "A Note on Longitudinally Matching Current Population Survey (CPS) Respondents," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0247, National Bureau of Economic Research, Inc.
  11. Abowd, John M & Zellner, Arnold, 1985. "Estimating Gross Labor-Force Flows," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 3(3), pages 254-83, June.
  12. Nobuhiro Kiyotaki & John Moore, 1995. "Credit Cycles," NBER Working Papers 5083, National Bureau of Economic Research, Inc.
  13. James Hines & Hilary Hoynes & Alan Krueger, 2001. "Another Look at Whether a Rising Tide Lifts All Boats," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 833, Princeton University, Department of Economics, Industrial Relations Section..
  14. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  15. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262161877, December.
  16. Shigeru Fujita & Garey Ramey, 2007. "The cyclicality of separation and job finding rates," Working Papers 07-19, Federal Reserve Bank of Philadelphia.
  17. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 195-222, March.
  18. Bruce Fallick & Charles A. Fleischman, 2004. "Employer-to-employer flows in the U.S. labor market: the complete picture of gross worker flows," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2004-34, Board of Governors of the Federal Reserve System (U.S.).
  19. repec:fth:prinin:454 is not listed on IDEAS
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Citations

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Cited by:
  1. Michael W.L. Elsby & Bart Hobijn & Aysegül Sahin, 2013. "On the importance of the participation margin for market fluctuations," Working Paper Series, Federal Reserve Bank of San Francisco 2013-05, Federal Reserve Bank of San Francisco.
  2. Kory Kroft & Matthew J. Notowidigdo, 2011. "Should Unemployment Insurance Vary With the Unemployment Rate? Theory and Evidence," NBER Working Papers 17173, National Bureau of Economic Research, Inc.
  3. Chassamboulli, Andri, 2013. "Labor-market volatility in a matching model with worker heterogeneity and endogenous separations," Labour Economics, Elsevier, Elsevier, vol. 24(C), pages 217-229.
  4. Aysegül Sahin & Jonathan L. Willis, 2011. "Employment patterns during the recovery: Who are getting the jobs and why?," Economic Review, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, issue Q III, pages 5-34.
  5. Mary C. Daly & Bart Hobijn & Theodore S. Wiles, 2011. "Aggregate Real Wages: Macro Fluctuations and Micro Drivers," Tinbergen Institute Discussion Papers, Tinbergen Institute 11-158/3, Tinbergen Institute.

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