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Unemployment and Endogenous Reallocation over the Business Cycle

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  • Carlos Carrillo-Tudela

    (Essex)

Abstract

This paper builds an analytically and computationally tractable stochastic equilibrium model of unemployment with heterogeneous labor markets. Unemployment is caused and affected by search frictions within markets and reallocation frictions across markets. We use this model to study quantitatively the relation between heterogeneity in labor market conditions across occupations, the cyclical patterns of unemployed workers' occupational (im)mobility, and overall aggregate fluctuations in unemployment. 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. Theoretically, we find also the latter to be the constrained efficient pattern. Calibrating the heterogeneous-market model yields highly volatile countercyclical unemployment, and is simultaneously consistent with procyclical reallocation, countercyclical separations, a clear Beveridge curve, and unemployment duration dependence. Due to the model's tractability, we can derive many of these results analytically. We decompose unemployment into the underlying search, reallocation and rest components.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 1045.

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Date of creation: 2012
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Handle: RePEc:red:sed012:1045

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Cited by:
  1. Damba Lkhagvasuren & Roy Nitulescu, 2013. "Sectoral Mobility and Unemployment with Heterogeneous Moving Costs," Journal of Labor Research, Springer, vol. 34(3), pages 339-358, September.
  2. 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.
  3. Plamen Nenov, 2013. "Regional Mismatch and Labor Reallocation in an Equilibrium Model of Migration," 2013 Meeting Papers 565, Society for Economic Dynamics.
  4. 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].
  5. 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.
  6. Carrillo-Tudela, Carlos & Hobijn, Bart & Visschers, Ludo, 2014. "Career changes decline during recessions," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
  7. Maximiliano Dvorkin, 2013. "Sectoral Shocks, Reallocation and Unemployment in a Model of Competitive Labor Markets," 2013 Meeting Papers 1229, Society for Economic Dynamics.

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