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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
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
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  18. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
  19. 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.
  20. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
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