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Screening and Labor Market Flows in a Model with Heterogeneous Workers

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  • FEDERICO RAVENNA
  • CARL E. WALSH

Abstract

We construct a model in which screening of heterogeneous workers by employers plays a central role in determining both the flows into and out of unemployment. Following a negative productivity shock, the share of low‐efficiency workers in the pool of unemployed rises, and this composition effect reduces the incentive of firms to post vacancies, lowering job opportunities for all workers. Heterogeneity in workers’ efficiency amplifies unemployment fluctuations in economies with small gross labor flows and leads to persistent buildups of unemployment and slow recoveries. The composition effect worsens the unemployment–inflation trade‐off faced by the monetary authority, leading to very large sacrifice ratios when a fall in productivity primarily affects low‐efficiency workers.

Suggested Citation

  • Federico Ravenna & Carl E. Walsh, 2012. "Screening and Labor Market Flows in a Model with Heterogeneous Workers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(s2), pages 31-71, December.
    • Handle: RePEc:wly:jmoncb:v:44:y:2012:i:s2:p:31-71
    DOI: 10.1111/j.1538-4616.2012.00553.x
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    Cited by:

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    2. Davide Debortoli & Jinill Kim & Jesper Lindé & Ricardo Nunes, 2019. "Designing a Simple Loss Function for Central Banks: Does a Dual Mandate Make Sense?," The Economic Journal, Royal Economic Society, vol. 129(621), pages 2010-2038.
    3. Hie Ahn & James Hamilton, 2016. "Heterogeneity and Unemployment Dynamics," Working Papers id:11130, eSocialSciences.
    4. Abdoulaye Millogo & Jean-François Rouillard, 2019. "Missing Disinflation and Human Capital Depreciation," Cahiers de recherche 19-03, Departement d'économique de l'École de gestion à l'Université de Sherbrooke, revised Oct 2020.
    5. Nittai K. Bergman & David Matsa & Michael Weber & Michael Weber, 2022. "Inclusive Monetary Policy: How Tight Labor Markets Facilitate Broad-Based Employment Growth," CESifo Working Paper Series 9512, CESifo.
    6. Carlos Carrillo-Tudela & Bart Hobijn & Powen She & Ludo Visschers, 2014. "The Extent and Cyclicality of Career Changes: Evidence for the UK (first version)," Edinburgh School of Economics Discussion Paper Series 246, Edinburgh School of Economics, University of Edinburgh.
    7. Pusateri, Nic, 2023. "Human capital heterogeneity of the unemployed and jobless recoveries," Journal of Macroeconomics, Elsevier, vol. 76(C).
    8. Khalifa, Sherif, 2015. "Learning-by-doing and unemployment dynamics," Economic Modelling, Elsevier, vol. 44(C), pages 180-187.
    9. Peter Mueser & Marios Michaelides, 2015. "Are Reemployment Services Effective? Experimental Evidence from the Great Recession (WP 15-09 is now WP 18-04)," Working Papers 1509, Department of Economics, University of Missouri, revised Feb 2018.
    10. Walsh, Carl E, 2014. "Multiple Objectives and Central Bank Tradeoffs Under Flexible Inflation Targeting," Santa Cruz Department of Economics, Working Paper Series qt3pq021t5, Department of Economics, UC Santa Cruz.
    11. Gorry, Aspen & Munro, David & vom Lehn, Christian, 2020. "Experience, skill composition, and the persistence of unemployment fluctuations," Labour Economics, Elsevier, vol. 63(C).
    12. Shuaizhang Feng & Lars Lefgren & Brennan C. Platt & Bingyong Zheng, 2019. "Job search under asymmetric information: endogenous wage dispersion and unemployment stigma," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(4), pages 817-851, June.
    13. Barrela, Rodrigo & Costa, Eduardo & Portugal, Pedro, 2024. "On the Asymmetrical Sensitivity of the Distribution of Real Wages to Business Cycle Fluctuations," IZA Discussion Papers 16911, Institute of Labor Economics (IZA).
    14. Sylvain Leduc & Zheng Liu, 2016. "The slow job recovery in a macro model of search and recruiting intensity," Working Paper Series 2016-9, Federal Reserve Bank of San Francisco.
    15. Hartl, Tobias & Hutter, Christian & Weber, Enzo, 2021. "Matching for three: big data evidence on search activity of workers, firms, and employment service," IAB-Discussion Paper 202101, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    16. Federico Ravenna & Carl E. Walsh, 2022. "Worker Heterogeneity, Selection, and Unemployment Dynamics in a Pandemic," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(S1), pages 113-155, February.

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