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Heterogeneity and Cyclical Unemployment

  • Mark Bils
  • Yongsung Chang
  • Sun-Bin Kim

We model worker heterogeneity in the rents from being employed in a Diamond-Mortensen-Pissarides model of matching and unemployment. We show that heterogeneity, reflecting differences in match quality and worker assets, reduces the extent of fluctuations in separations and unemployment. We find that the model faces a trade-off--it cannot produce both realistic dispersion in wage growth across workers and realistic cyclical fluctuations in unemployment.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15166.

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Date of creation: Jul 2009
Date of revision:
Publication status: published as “Worker Heterogeneity and Endogenous Separations in a Matching Model of Unemployment Fluctuations” (together with Yongsung Chang and Sun-Bin Kim), American Economic Journal: Macroeconomics , January 2011.
Handle: RePEc:nbr:nberwo:15166
Note: EFG
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  1. Yongsung Chang & Sun-Bin Kim, 2006. "From Individual To Aggregate Labor Supply: A Quantitative Analysis Based On A Heterogeneous Agent Macroeconomy ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 1-27, 02.
  2. Krusell, Per & Mukoyama, Toshihiko & Sahin, Aysegul, 2009. "Labor-Market Matching with Precautionary Savings and Aggregate Fluctuations," CEPR Discussion Papers 7429, C.E.P.R. Discussion Papers.
  3. Mark Bils & Yongsung Chang & Sun-Bin Kim, 2007. "Comparative Advantage in Cyclical Unemployment," NBER Working Papers 13231, National Bureau of Economic Research, Inc.
  4. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  5. Woodcock, Simon D., 2008. "Wage differentials in the presence of unobserved worker, firm, and match heterogeneity," Labour Economics, Elsevier, vol. 15(4), pages 771-793, August.
  6. Marcus Hagedorn & Iourii Manovskii, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," 2005 Meeting Papers 460, Society for Economic Dynamics.
  7. Christian Haefke & Michael Reiter, 2006. "Endogenous labor market participation and the business cycle," Economics Working Papers 950, Department of Economics and Business, Universitat Pompeu Fabra.
  8. Sider, Hal, 1985. "Unemployment Duration and Incidence: 1968-82," American Economic Review, American Economic Association, vol. 75(3), pages 461-72, June.
  9. James S. Costain & Michael Reiter, 2003. "Business Cycles, Unemployment Insurance, and the Calibration of Matching Models," CESifo Working Paper Series 1008, CESifo Group Munich.
  10. Coles, Melvyn G. & Wright, Randall, 1998. "A Dynamic Equilibrium Model of Search, Bargaining, and Money," Journal of Economic Theory, Elsevier, vol. 78(1), pages 32-54, January.
  11. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  12. Gomes, Joao F & Greenwood, Jeremy & Rebelo, Sérgio, 1997. "Equilibrium Unemployment," CEPR Discussion Papers 1602, C.E.P.R. Discussion Papers.
  13. Darby, Michael R & Haltiwanger, John C & Plant, Mark W, 1985. "Unemployment Rate Dynamics and Persistent Unemployment under Rational Expectations," American Economic Review, American Economic Association, vol. 75(4), pages 614-37, September.
  14. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 659-84, August.
  15. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  16. Makoto Nakajima, 2006. "Business Cycles in the Equilibrium Model of Labor Search and Self-Insurance," Computing in Economics and Finance 2006 426, Society for Computational Economics.
  17. Yongsung Chang & Sun-Bin Kim, 2007. "Heterogeneity and Aggregation: Implications for Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 97(5), pages 1939-1956, December.
  18. 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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