The Asymmetric Cyclical Behavior of the U.S. Labor Market

Cyclical fluctuations in the U.S. labor market and output exhibit a significant asymmetry. In this paper, I develop a search-and-matching model with endogenous job destruction and permanently heterogeneous workers (in skill/productivity) that accounts for this asymmetry while also generating (i) realistic volatility in unemployment and job-finding rates and (ii) preserving a downward-sloping Beveridge curve. The model delivers stark predictions for the time series of skill-specific unemployment rates that hold in CPS micro data once I sort workers by age and education. A general implication of the analysis is that the responsiveness of unemployment to stimulus policies increases substantially during recessions.