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Separations, Sorting and Cyclical Unemployment

  • Mueller, Andreas I.

    ()

    (Columbia University)

This paper establishes a new fact about the compositional changes in the pool of unemployed over the U.S. business cycle and evaluates a number of theories that can potentially explain it. Using micro-data from the Current Population Survey for the years 1962-2011, it documents that in recessions the pool of unemployed shifts towards workers with high wages in their previous job. Moreover, it shows that these changes in the composition of the unemployed are mainly due to the higher cyclicality of separations for high-wage workers, and not driven by differences in the cyclicality of job-finding rates. A search-matching model with endogenous separations and worker heterogeneity in terms of ability has difficulty in explaining these patterns, but an extension of the model with credit-constraint shocks does much better in accounting for the new facts.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6849.

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Length: 47 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6849
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  1. MUKOYAMA, Toshihiko & ŞAHIN, Ayşegül, 2005. "Costs of Business Cycles for Unskilled Workers," Cahiers de recherche 15-2005, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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  3. James Hines & Hilary Hoynes & Alan Krueger, 2001. "Another Look at Whether a Rising Tide Lifts All Boats," Working Papers 833, Princeton University, Department of Economics, Industrial Relations Section..
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  8. Gary Solon & Robert Barsky & Jonathan A. Parker, 1992. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias," NBER Working Papers 4202, National Bureau of Economic Research, Inc.
  9. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  10. Forslund, Anders & Fredriksson, Peter & Vikström, Johan, 2011. "What active labor market policy works in a recession?," Research Papers in Economics 2011:9, Stockholm University, Department of Economics.
  11. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  12. Christian Haefke & Marcus Sonntag & Thijs van Rens, 2009. "Wage Rigidity and Job Creation," Kiel Working Papers 1504, Kiel Institute for the World Economy.
  13. Brigitte C. Madrian & Lars John Lefgren, 1999. "A Note on Longitudinally Matching Current Population Survey (CPS) Respondents," NBER Technical Working Papers 0247, National Bureau of Economic Research, Inc.
  14. Marcus Hagedorn & Iourii Manovskii, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," 2005 Meeting Papers 460, Society for Economic Dynamics.
  15. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March.
  16. 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, 05.
  17. Per Krusell & Anthony A. Smith, Jr., . "Income and Wealth Heterogeneity in the Macroeconomy," GSIA Working Papers 1997-37, Carnegie Mellon University, Tepper School of Business.
  18. Hoyt Bleakley & Ann E. Ferris & Jeffrey C. Fuhrer, 1999. "New data on worker flows during business cycles," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 49-76.
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  24. Michael Pries, 2008. "Worker Heterogeneity and Labor Market Volatility in Matching Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 664-678, July.
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  26. Lown, Cara & Morgan, Donald P., 2004. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," SIFR Research Report Series 27, Institute for Financial Research.
  27. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  28. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
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