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Directed Search over the Life Cycle

  • Guido Menzio


    (Department of Economics, University of Pennsylvania)

  • Irina A. Telyukova


    (Department of Economics, University of California, San Diego)

  • Ludo Visschers


    (Universidad Carlos III de Madrid)

We develop a life-cycle model of the labor market in which different worker-firm matches have different quality and the assignment of the right workers to the right firms is time consuming because of search and learning frictions. The rate at which workers move between unemployment, employment and across different firms is endogenous because search is directed and, hence, workers can choose whether to seek low-wage jobs that are easy to find or high-wage jobs that are hard to find. We calibrate our theory using data on labor market transitions aggregated across workers of different ages. We validate our theory by showing that it correctly predicts the pattern of labor market transitions for workers of different ages. Finally, we use our theory to decompose the age profiles of transition rates, wages and productivity into the effects of age variation in work-life expectancy, human capital and match quality.

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Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 12-002.

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Length: 54 pages
Date of creation: 04 Jan 2012
Date of revision:
Handle: RePEc:pen:papers:12-002
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  6. Guido Menzio & Shouyong Shi, 2009. "Block Recursive Equilibria for Stochastic Models of Search on the Job," PIER Working Paper Archive 09-005, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  7. Paul Gomme & Richard Rogerson & Peter Rupert & Randall Wright, 2004. "The business cycle and the life cycle," Working Paper 0404, Federal Reserve Bank of Cleveland.
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