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The Alpha Beta Gamma of the Labor Market

Author

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  • Victoria Gregory
  • Guido Menzio
  • David Wiczer

Abstract

Based on patterns of employment transitions, we identify three different types of workers in the US labor market: α’s β’s and γ’s. Workers of type α make up over half of all workers, are most likely to remain on the same job for more than 2 years and, when they become unemployed, typically find a new job within 1 quarter. Workers of type γ comprise less than one-fifth of workers, have a low probability of staying on the same job for more than 2 years and, when they become unemployed, face a high probability of remaining jobless for more than 1 year. Workers of type β are in between αs and γ’s. The earnings losses caused by displacement are relatively small and transitory for α-workers, while they are large and persistent for γ-workers. During the Great Recession, excess unemployment for α-workers rose by little and was reabsorbed quickly; unemployment for γ-workers rose by 20 percentage points and was not reabsorbed 4 years after its peak. We use a search-theoretic model of the labor market to rationalize the different patterns of employment transitions across types. The model naturally explains both the variation in the consequences of job displacement across types, and the variation in the dynamics of unemployment during the Great Recession. Our view is that several puzzling micro and macro phenomena about the labor market are driven by the behavior of the small group of γ-workers.

Suggested Citation

  • Victoria Gregory & Guido Menzio & David Wiczer, 2021. "The Alpha Beta Gamma of the Labor Market," Working Papers 2021-003, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:90561
    DOI: 10.20955/wp.2021.003
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Search frictions; Unemployment; Business Cycles;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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