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Unemployment and Endogenous Reallocation over the Business Cycle

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  • Carrillo-Tudela, Carlos

    ()
    (University of Essex)

  • Visschers, Ludo

    ()
    (University of Edinburgh)

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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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7124.

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Length: 84 pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7124

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Keywords: endogenous separations; search; business cycle; unemployment; reallocation; occupational mobility;

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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. 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.
  3. 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].
  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. 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.
  6. 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.
  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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