IDEAS home Printed from https://ideas.repec.org/a/eee/dyncon/v100y2019icp334-352.html
   My bibliography  Save this article

Unemployment fluctuations over the life cycle

Author

Listed:
  • Hairault, Jean-Olivier
  • Langot, Francois
  • Sopraseuth, Thepthida

Abstract

In this paper, we show that (i) the volatility of worker flows increases with age in US CPS data, and (ii)a search and matching model with life-cycle features, endogenous separation and search effort, is well suited to explain this fact. With a shorter horizon on the labor market, older workers’ outside options become less responsive to new employment opportunities, thereby making their wages less sensitive to the business cycle. Their job finding and separation rates are then more volatile along the business cycle. The horizon effect cannot explain the significant differences between prime-age and young workers as both age groups are far away from retirement. A lower bargaining power on the youth labor market brings the model closer to the data.

Suggested Citation

  • Hairault, Jean-Olivier & Langot, Francois & Sopraseuth, Thepthida, 2019. "Unemployment fluctuations over the life cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 100(C), pages 334-352.
    • Handle: RePEc:eee:dyncon:v:100:y:2019:i:c:p:334-352
    DOI: 10.1016/j.jedc.2019.01.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165188919300090
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jedc.2019.01.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
    2. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2010. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States: 1967-2006," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 15-51, January.
    3. Dale Mortensen & Eva Nagypal, 2007. "More on Unemployment and Vacancy Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(3), pages 327-347, July.
    4. Lawrence J. Christiano & Martin S. Eichenbaum & Mathias Trabandt, 2016. "Unemployment and Business Cycles," Econometrica, Econometric Society, vol. 84(4), pages 1523-1569, July.
    5. Menzio, Guido & Shi, Shouyong, 2010. "Block recursive equilibria for stochastic models of search on the job," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1453-1494, July.
    6. Gary Solon & Ryan Michaels & Michael W. L. Elsby, 2009. "The Ins and Outs of Cyclical Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 84-110, January.
    7. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    8. Nir Jaimovich & Henry E. Siu, 2009. "The Young, the Old, and the Restless: Demographics and Business Cycle Volatility," American Economic Review, American Economic Association, vol. 99(3), pages 804-826, June.
    9. Olivier Blanchard & Jordi Galí, 2010. "Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 1-30, April.
    10. Jean-Olivier Hairault & François Langot & Thepthida Sopraseuth, 2010. "Distance to Retirement and The Job Search of Older Workers: The Case For Delaying Retirement Age," Post-Print hal-00517107, HAL.
    11. Guido Menzio & Irina Telyukova & Ludo Visschers, 2016. "Directed Search over the Life Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 38-62, January.
    12. Andreas Hornstein & Marianna Kudlyak, 2015. "Estimating Matching Efficiency with Variable Search Effort," Working Paper Series 2016-24, Federal Reserve Bank of San Francisco.
    13. Michael W. L. Elsby & Bart Hobijn & Aysegul Sahin, 2010. "The Labor Market in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 1-69.
    14. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    15. Arnaud Chéron & Jean-Olivier Hairault & François Langot, 2013. "Life-Cycle Equilibrium Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 31(4), pages 843-882.
    16. Jesper Bagger & Fran?ois Fontaine & Fabien Postel-Vinay & Jean-Marc Robin, 2014. "Tenure, Experience, Human Capital, and Wages: A Tractable Equilibrium Search Model of Wage Dynamics," American Economic Review, American Economic Association, vol. 104(6), pages 1551-1596, June.
    17. Jean-Olivier Hairault & Francois Langot & Thepthida Sopraseuth, 2010. "Distance to Retirement and Older Workers' Employment: The Case for Delaying the Retirement Age," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 1034-1076, September.
    18. Jeremy Lise & Jean-Marc Robin, 2017. "The Macrodynamics of Sorting between Workers and Firms," American Economic Review, American Economic Association, vol. 107(4), pages 1104-1135, April.
    19. Galí, Jordi, 2010. "Monetary Policy and Unemployment," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 10, pages 487-546, Elsevier.
    20. Jeremy Lise, 2013. "On-the-Job Search and Precautionary Savings," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(3), pages 1086-1113.
    21. Lars Ljungqvist & Thomas J. Sargent, 2008. "Two Questions about European Unemployment," Econometrica, Econometric Society, vol. 76(1), pages 1-29, January.
    22. Barron, John M & Bishop, John, 1985. "Extensive Search, Intensive Search, and Hiring Costs: New Evidence on Employer Hiring Activity," Economic Inquiry, Western Economic Association International, vol. 23(3), pages 363-382, July.
    23. Stephen DeLoach & Mark Kurt, 2013. "Discouraging Workers: Estimating the Impacts of Macroeconomic Shocks on the Search Intensity of the Unemployed," Journal of Labor Research, Springer, vol. 34(4), pages 433-454, December.
    24. Robert E. Hall & Paul R. Milgrom, 2008. "The Limited Influence of Unemployment on the Wage Bargain," American Economic Review, American Economic Association, vol. 98(4), pages 1653-1674, September.
    25. Michael W. L. Elsby & Jennifer C. Smith & Jonathan Wadsworth, 2011. "The role of worker flows in the dynamics and distribution of UK unemployment," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 27(2), pages 338-363.
    26. Shigeru Fujita & Garey Ramey, 2012. "Exogenous versus Endogenous Separation," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 68-93, October.
    27. Krause, Michael U. & Lubik, Thomas A., 2007. "The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 706-727, April.
    28. Cheron, Arnaud & Langot, Francois, 2000. "The Phillips and Beveridge curves revisited," Economics Letters, Elsevier, vol. 69(3), pages 371-376, December.
    29. Jesper Bagger & Francois Fontaine & Fabien Postel-Vinay & Jean-Marc Robin, 2014. "Tenure, Experience, Human Capital, and Wages," Post-Print hal-01301431, HAL.
    30. Shigeru Fujita, 2011. "Dynamics of worker flows and vacancies: evidence from the sign restriction approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(1), pages 89-121, January/F.
    31. Hairault, Jean-Olivier & Langot, Francois (ed.), 2016. "Labour Market and Retirement Interactions: A new perspective on employment for older workers," OUP Catalogue, Oxford University Press, number 9780198779179.
    32. Carl E. Walsh, 2005. "Labor Market Search, Sticky Prices, and Interest Rate Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 829-849, October.
    33. Sekyu Choi & Alexandre Janiak & Benjamín Villena‐Roldán, 2015. "Unemployment, Participation and Worker Flows Over the Life‐Cycle," Economic Journal, Royal Economic Society, vol. 125(589), pages 1705-1733, December.
    34. Nicolas Petrosky-Nadeau & Lu Zhang, 2013. "Solving the DMP Model Accurately," NBER Working Papers 19208, National Bureau of Economic Research, Inc.
    35. Andreas I. Mueller, 2017. "Separations, Sorting, and Cyclical Unemployment," American Economic Review, American Economic Association, vol. 107(7), pages 2081-2107, July.
    36. Bent Jesper Christensen & Rasmus Lentz & Dale T. Mortensen & George R. Neumann & Axel Werwatz, 2005. "On-the-Job Search and the Wage Distribution," Journal of Labor Economics, University of Chicago Press, vol. 23(1), pages 31-58, January.
    37. Gomme, Paul & Lkhagvasuren, Damba, 2015. "Worker search effort as an amplification mechanism," Journal of Monetary Economics, Elsevier, vol. 75(C), pages 106-122.
    38. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    39. Busch Michael E., 2012. "The CPS Redesign's Effects on Measured Unemployment Duration in the Great Recession," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-19, May.
    40. Shigeru Fujita & Garey Ramey, 2009. "The Cyclicality Of Separation And Job Finding Rates," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 415-430, May.
    41. Barnichon, Regis, 2010. "Building a composite Help-Wanted Index," Economics Letters, Elsevier, vol. 109(3), pages 175-178, December.
    42. Paul Gomme & Richard Rogerson & Peter Rupert & Randall Wright, 2005. "The Business Cycle and the Life Cycle," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 415-592, National Bureau of Economic Research, Inc.
    43. Barron, John M & Berger, Mark C & Black, Dan A, 1997. "Employer Search, Training, and Vacancy Duration," Economic Inquiry, Western Economic Association International, vol. 35(1), pages 167-192, January.
    44. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    45. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    46. Sagiri Kitao & Lars Ljungqvist & Thomas Sargent, 2017. "A Life-Cycle Model of Trans-Atlantic Employment Experiences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 25, pages 320-349, April.
    47. repec:hal:spmain:info:hdl:2441/7rep5mp5ij95l94ec64n5tdclp is not listed on IDEAS
    48. Robert Shimer, 2012. "Reassessing the Ins and Outs of Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 127-148, April.
    49. repec:hal:spmain:info:hdl:2441/2gm7u1h28o97arriihp43sr90l is not listed on IDEAS
    50. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-132, March.
    51. Ana Castaneda & Javier Diaz-Gimenez & Jose-Victor Rios-Rull, 2003. "Accounting for the U.S. Earnings and Wealth Inequality," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 818-857, August.
    52. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1.
    53. Jonathan Gruber & David A. Wise, 1999. "Introduction to "Social Security and Retirement around the World"," NBER Chapters, in: Social Security and Retirement around the World, pages 1-35, National Bureau of Economic Research, Inc.
    54. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Arnaud Chéron & Anthony Terriau, 2023. "On-The-Job Search, Life-cycle Training, and the Role of Transfer Fees," TEPP Working Paper 2023-06, TEPP.
    2. Hana Urbancová & Lucie Vnoučková & Zdenek Linhart & Gabriela Ježková Petrů & Roman Zuzák & Lenka Holečková & Zita Prostějovská, 2020. "Impact of Age Management on Sustainability in Czech Organisations," Sustainability, MDPI, vol. 12(3), pages 1-20, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jean-Olivier Hairault & François Langot & Thepthida Sopraseuth, 2014. "Why is Old Workers’ Labor Market more Volatile? Unemployment Fluctuations over the Life-Cycle," TEPP Working Paper 2014-03, TEPP.
    2. Hairault, Jean-Olivier & Langot, Francois & Sopraseuth, Thepthida, 2019. "Unemployment fluctuations over the life cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 100(C), pages 334-352.
    3. Domenico Ferraro, 2018. "The Asymmetric Cyclical Behavior of the U.S. Labor Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 145-162, October.
    4. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
    5. Federico Di Pace & Matthias Hertweck, 2019. "Labor Market Frictions, Monetary Policy, and Durable Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 274-304, April.
    6. Matthias S. Hertweck & Vivien Lewis & Stefania Villa, 2021. "Going the Extra Mile: Effort by Workers and Job‐Seekers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(8), pages 2099-2127, December.
    7. Carlos Carrillo‐Tudela & Ludo Visschers, 2023. "Unemployment and Endogenous Reallocation Over the Business Cycle," Econometrica, Econometric Society, vol. 91(3), pages 1119-1153, May.
    8. Euiyoung Jung, 2021. "Rigid Wages, Endogenous Job Destruction, and Destabilizing Spirals," Working Papers halshs-03213006, HAL.
    9. Eleni Iliopulos & François Langot & Thepthida Sopraseuth, 2019. "Welfare Cost of Fluctuations When Labor Market Search Interacts with Financial Frictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(8), pages 2207-2237, December.
    10. Langot, François & Moreno-Galbis, Eva, 2013. "Does the growth process discriminate against older workers?," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 286-306.
    11. Nicolas Petrosky-Nadeau, 2014. "Credit, Vacancies and Unemployment Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 191-205, April.
    12. Lalé, Etienne, 2018. "Loss of skill and labor market fluctuations," Labour Economics, Elsevier, vol. 50(C), pages 20-31.
    13. Adjemian, Stéphane & Karamé, Frédéric & Langot, François, 2021. "Nonlinearities and Workers’ Heterogeneity in Unemployment Dynamics," Dynare Working Papers 71, CEPREMAP.
    14. Chassamboulli, Andri, 2013. "Labor-market volatility in a matching model with worker heterogeneity and endogenous separations," Labour Economics, Elsevier, vol. 24(C), pages 217-229.
    15. F. Di Pace & K. Mitra & S. Zhang, 2021. "Adaptive Learning and Labor Market Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(2-3), pages 441-475, March.
    16. Martin Gervais & Nir Jaimovich & Henry E. Siu & Yaniv Yedid‐Levi, 2015. "Technological Learning And Labor Market Dynamics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(1), pages 27-53, February.
    17. Euiyoung Jung, 2021. "Rigid Wages, Endogenous Job Destruction, and Destabilizing Spirals," PSE Working Papers halshs-03213006, HAL.
    18. Lechthaler, Wolfgang & Merkl, Christian & Snower, Dennis J., 2010. "Monetary persistence and the labor market: A new perspective," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 968-983, May.
    19. Kurozumi, Takushi & Van Zandweghe, Willem, 2010. "Labor market search, the Taylor principle, and indeterminacy," Journal of Monetary Economics, Elsevier, vol. 57(7), pages 851-858, October.
    20. Isabel Cairó & Tomaz Cajner, 2018. "Human Capital and Unemployment Dynamics: Why More Educated Workers Enjoy Greater Employment Stability," Economic Journal, Royal Economic Society, vol. 128(609), pages 652-682, March.

    More about this item

    Keywords

    Search; Matching; Business cycle; Life cycle;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:100:y:2019:i:c:p:334-352. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jedc .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.