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Worker Flows, Job Flows and Unemployment in a Matching Model

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  • Simon Burgess
  • Helene Turon

Abstract

Standard matching models of unemployment assume that workers and job flows are identical. This is in stark contrast to empirical evidence that job flows in fact only account for a fraction of worker ßows, that unemployment exits only account for a fraction of hires and that these fractions vary over the cycle. In this paper, we develop and calibrate a model based on the Mortensen and Pissarides approach but that emphasises this issue. We show that this matters - that it has very different implications for our view of unemployment dynamics. The key features of our model relate to the search options of the worker, and the job creation decision by firms. We allow workers to search whilst employed, and firms to re-advertise jobs that have been quit from. This leads us to use a different job creation process, whereby potential vacancies, or job 'ideas', arise at a finite rate per period over a range of idiosyncratic productivities. In the standard setting, there is an unlimited supply of potential vacancies at the top idiosyncratic productivity. The main results are as follows. First, the presence of on-the-job search has a substantial impact on labour market equilibrium, whereby equilibrium unemployment is lower and exhibits a higher turnover rate. On-the-job search renders the unemployment inflow rate more sensitive to the cycle: in all cases, the inflow rate is found to be more cyclically sensitive than the outflow rate, suggesting that most unemployment dynamics occur through this channel. This confrms empirical results for Great Britain (Burgess and Turon (2005)). Second, our model offers some insight into a (two-way) relationship between job-to-job flows, which drives the difference between worker and job flows, and the extent of wage dispersion. More wage dispersion increases the incentive to search on-the-job and more on-the-job search widens the range of viable productivities and leads to lower wages at the bottom of the wage distribution, thereby increasing wage dispersion. Third, changes in the model's exogenous parameters impact unemployment to a considerable degree by changing the level of employed job search.

Suggested Citation

  • Simon Burgess & Helene Turon, 2005. "Worker Flows, Job Flows and Unemployment in a Matching Model," Bristol Economics Discussion Papers 05/572, School of Economics, University of Bristol, UK.
  • Handle: RePEc:bri:uobdis:05/572
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    Cited by:

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    2. Timo Baas & Ansgar Belke, 2014. "Labor Market Reforms and Current Account Imbalances - Beggar-thy-Neighbor Policies in a Currency Union?," Ruhr Economic Papers 0505, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    3. Berger, Johannes & Strohner, Ludwig, 2020. "Documentation of the PUblic Policy Model for Austria and other European countries (PUMA)," Research Papers 11, EcoAustria – Institute for Economic Research.
    4. Baas, Timo & Belke, Ansgar H., 2014. "Labor Market Reforms and Current Account Imbalances: Beggar-Thy-Neighbor Policies in a Currency Union?," IZA Discussion Papers 8453, Institute of Labor Economics (IZA).
    5. Pawel Krolikowski, 2017. "Job Ladders and Earnings of Displaced Workers," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(2), pages 1-31, April.
    6. Zanetti, Francesco, 2011. "Labor market institutions and aggregate fluctuations in a search and matching model," European Economic Review, Elsevier, vol. 55(5), pages 644-658, June.
    7. Simon Burgess & Helene Turon, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies – A Comment," Bristol Economics Discussion Papers 05/573, School of Economics, University of Bristol, UK.
    8. Giuseppe Moscarini & Fabien Postel-Vinay, 2016. "Wage Posting and Business Cycles: a Quantitative Exploration," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 135-160, January.
    9. Kadri Kuusk & Mikhail Martynovich, 2021. "Dynamic Nature of Relatedness, or What Kind of Related Variety for Long‐Term Regional Growth," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 112(1), pages 81-96, February.
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    11. Miyamoto Hiroaki, 2011. "Cyclical Behavior of a Matching Model with Capital Investment," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-25, January.
    12. Hector Sala & José I. Silva & Manuel Toledo, 2012. "Flexibility at the Margin and Labor Market Volatility in OECD Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(3), pages 991-1017, September.
    13. Steven J. Davis & Till Von Wachter, 2011. "Recessions and the Costs of Job Loss," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 1-72.
    14. Schaefer, Daniel & Singleton, Carl, 2018. "Unemployment and econometric learning," Research in Economics, Elsevier, vol. 72(2), pages 277-296.
    15. William J. Carrington & Bruce Fallick, 2017. "Why Do Earnings Fall with Job Displacement?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 56(4), pages 688-722, October.
    16. Steven J. Davis & Till Von Wachter, 2011. "Recessions and the Costs of Job Loss," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 1-72.
    17. Miyamoto, Hiroaki, 2011. "Cyclical behavior of unemployment and job vacancies in Japan," Japan and the World Economy, Elsevier, vol. 23(3), pages 214-225.
    18. Bank of England, 2008. "Labor Market Institutions and Aggregate Fluctuations in a Search and Matching Model," 2008 Meeting Papers 370, Society for Economic Dynamics.
    19. Ochsen, Carsten, 2008. "How the distribution of unemployment by duration affects the unemployment rate," Thuenen-Series of Applied Economic Theory 88, University of Rostock, Institute of Economics.
    20. Kadri Kuusk & Mikhail Martynovich, 2018. "What kind of related variety for long-term regional growth?," Papers in Evolutionary Economic Geography (PEEG) 1834, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Sep 2018.

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    More about this item

    Keywords

    Unemployment; on-the-job search; worker flows; job flows; matching.;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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