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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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  7. Forslund, Anders & Fredriksson, Peter & Vikström, Johan, 2011. "What active labor market policy works in a recession?," Working Paper Series 2011:2, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  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. Peter Gottschalk, 2002. "Downward nominal wage flexibility: real or measurement error?," Boston College Working Papers in Economics 534, Boston College Department of Economics.
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  12. 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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  17. 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..
  18. Robert Shimer, 2012. "Reassessing the Ins and Outs of Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 127-148, April.
  19. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 666-89, August.
  20. Lown, Cara & Morgan, Donald P., 2006. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1575-1597, September.
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