IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Worker Flows, Job Flows and Unemployment in a Matching Model

Listed author(s):
  • Simon Burgess
  • Helene Turon

    ()

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.efm.bris.ac.uk/economics/working_papers/pdffiles/dp05572.pdf
Download Restriction: no

Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 05/572.

as
in new window

Length: 45 pages
Date of creation: Jan 2005
Handle: RePEc:bri:uobdis:05/572
Contact details of provider: Postal:
Priory Road Complex, Priory Road, Bristol, BS8 1TU

Phone: 0117 928 8415
Fax: 0117 928 8577
Web page: http://www.efm.bris.ac.uk/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Christian Bontemps & Jean-Marc Robin & Gérard J. Van den Berg, 1999. "An Empirical Equilibrium Job Search Model With Search on the Job and Heterogeneous Workers and Firms," Post-Print hal-00357757, HAL.
  2. Flinn, Christopher J, 1986. "Wages and Job Mobility of Young Workers," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 88-110, June.
  3. Balmaseda, Manuel & Dolado, Juan J & Lopez-Salido, J David, 2000. "The Dynamic Effects of Shocks to Labour Markets: Evidence from OECD Countries," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 3-23, January.
  4. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, "undated". "On-the-Job Search in a Matching Model with Heterogenous Jobs and Workers," Working Papers 2003-21, FEDEA.
  5. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  6. Eriksson, Stefan & Gottfries, Nils, 2000. "Ranking of Job Applicants, On-the-job Search and Persistent Unemployment," Working Paper Series 2000:3, Uppsala University, Department of Economics.
  7. Den Haan, Wouter & Haefke, Christian & Ramey, Gary, 2004. "Turbulence and Unemployment in a Job Matching Model," CEPR Discussion Papers 4765, C.E.P.R. Discussion Papers.
  8. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  9. Boeri, Tito, 1998. "Enforcement of Employment Security Regulations, On-The-Job Search and Unemployment Duration," CEPR Discussion Papers 1850, C.E.P.R. Discussion Papers.
  10. Burgess, Simon M, 1993. "A Model of Competition between Unemployed and Employed Job Searchers: An Application to the Unemployment Outflow Rate in Britain," Economic Journal, Royal Economic Society, vol. 103(420), pages 1190-1204, September.
  11. Dale T. Mortensen & Eva Nagypal, 2005. "More on Unemployment and Vacancy Fluctuations," NBER Working Papers 11692, National Bureau of Economic Research, Inc.
  12. Thomas A. Lubik & Michael U. Krause, 2005. "On-the-job Search and the Cyclical Dynamics of the Labor Market," 2005 Meeting Papers 792, Society for Economic Dynamics.
  13. Mortensen, Dale T., 1994. "The cyclical behavior of job and worker flows," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1121-1142, November.
  14. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
  15. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May.
  16. Simon Burgess & Helene Turon, 2000. "Unemployment dynamics, duration and equilibrium: evidence from Britain," LSE Research Online Documents on Economics 20162, London School of Economics and Political Science, LSE Library.
  17. Wouter J. den Haan & Garey Ramey & Joel Watson, 1997. "Job Destruction and Propagation of Shocks," NBER Working Papers 6275, National Bureau of Economic Research, Inc.
  18. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
  19. Dale T. Mortensen & Christopher A. Pissarides, 1999. "Job Reallocation, Employment Fluctuations and Unemployment," CEP Discussion Papers dp0421, Centre for Economic Performance, LSE.
  20. den Haan, Wouter J. & Haefke, Christian & Ramey, Garey, 2001. "Shocks and Institutions in a Job Matching Model," University of California at San Diego, Economics Working Paper Series qt7x3544bn, Department of Economics, UC San Diego.
  21. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, December.
  22. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
  23. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877.
  24. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
  25. Manuel Toledo & Jose I. Silva, 2005. "Labor Turnover Costs and the Cyclical Behavior of Vacancies and Unemployment," 2005 Meeting Papers 775, Society for Economic Dynamics.
  26. Boeri, Tito, 1996. "Is Job Turnover Countercyclical?," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 603-625, October.
  27. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1120-1155, April.
  28. Marcus Hagedorn & Iourii Manovskii, 2007. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," IEW - Working Papers 351, Institute for Empirical Research in Economics - University of Zurich.
  29. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
  30. Pissarides, C. & Wadsworth, J., 1988. "On-The-Job Search: Some Empirical Evidence," Papers 317, London School of Economics - Centre for Labour Economics.
  31. Christiano, Lawrence J, 1990. "Solving the Stochastic Growth Model by Linear-Quadratic Approximation and by Value-Function Iteration," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 23-26, January.
  32. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-273, May.
  33. Contini, Bruno & Revelli, Riccardo, 1997. "Gross flows vs. net flows in the labor market: What is there to be learned?," Labour Economics, Elsevier, vol. 4(3), pages 245-263, September.
  34. Eran Yashiv, 2005. "Forward-Looking Hiring Behavior and the Dynamics of the Aggregate Labor Market," 2005 Meeting Papers 360, Society for Economic Dynamics.
  35. Andrés Fuentes, 2002. "On-the-Job Search and the Beveridge Curve," IMF Working Papers 02/37, International Monetary Fund.
  36. Pissarides, Christopher A. & Wadsworth, Jonathan, 1994. "On-the-job search: Some empirical evidence from Britain," European Economic Review, Elsevier, vol. 38(2), pages 385-401, February.
  37. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  38. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  39. Kugler, Adriana & Saint-Paul, Gilles, 2000. "Hiring and Firing Costs, Adverse Selection and Long-term Unemployment," IZA Discussion Papers 134, Institute for the Study of Labor (IZA).
  40. Burgess, Simon & Lane, Julia & Stevens, David, 2000. "Job Flows, Worker Flows, and Churning," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 473-502, July.
  41. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "Unemployment and vacancy fluctuations in the matching model: inspecting the mechanism," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 19-50.
  42. Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues 91-5, Federal Reserve Bank of Chicago.
  43. Christopher A. Pissarides, 1994. "Search Unemployment with On-the-job Search," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 457-475.
  44. Balakrishnan, R. & Michelacci, C., 1998. "Unemployment Dynamics Across OECD Countries," Papers 9806, Centro de Estudios Monetarios Y Financieros-.
  45. Lane, Julia & Stevens, David & Burgess, Simon, 1996. "Worker and job flows," Economics Letters, Elsevier, vol. 51(1), pages 109-113, April.
  46. Burda, Michael & Wyplosz, Charles, 1994. "Gross worker and job flows in Europe," European Economic Review, Elsevier, vol. 38(6), pages 1287-1315, June.
  47. Stephen Nickell & Patricia Jones & Glenda Quintini, 2002. "A Picture of Job Insecurity Facing British Men," Economic Journal, Royal Economic Society, vol. 112(476), pages 1-27, January.
  48. Blau, David M & Robins, Philip K, 1990. "Job Search Outcomes for the Employed and Unemployed," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 637-655, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bri:uobdis:05/572. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jonathan Temple)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.