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Long-term Unemployment: Attached and Mismatched?

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  • David Wiczer

    (University of Minnesota)

Abstract

The rate of long-term unemployment spiked during the Great Recession. To help explain this, I exploit the systematic and counter-cyclical differences in unemployment duration across occupations. This heterogeneity extends the tail of the unemployment duration distribution, which is necessary to account for the observed level of long-term unemployment and its increase since 2007. This paper introduces a model in which unemployment duration and occupation are linked; it measures the effects of occupation-specific shocks and skills on unemployment duration. Here, a worker will be paid more for human capital in his old occupation but a bad shock may make those jobs scarce. Still, their human capital partly "attaches" them to their prior occupation, even when searching there implies a longer expected duration. Hence, unemployment duration rises and becomes more dispersed across occupations. Redistributive shocks and business cycles, as in the Great Recession, exacerbate this effect. For quantitative discipline, the model matches data on the wage premium to occupational experience and the co-movement of occupations' productivity. The distribution of duration is then endogenous. For comparison's sake, if a standard model with homogeneous job seekers matches the job nding rate, then it also determines expected duration and understates it. That standard model implies just over half of the long-term unemployment in 1976-2007 and almost no rise in the recent recession. But, with heterogeneity by occupation, this paper nearly matches long-term unemployment in the period 1976-2007 and 70% of its rise during the Great Recession.

Suggested Citation

  • David Wiczer, 2013. "Long-term Unemployment: Attached and Mismatched?," 2013 Meeting Papers 1101, Society for Economic Dynamics.
  • Handle: RePEc:red:sed013:1101
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    References listed on IDEAS

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    1. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
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    8. Mitman, Kurt & Rabinovich, Stanislav, 2015. "Optimal unemployment insurance in an equilibrium business-cycle model," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 99-118.
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    Citations

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    Cited by:

    1. Ludo Visschers & Carlos Carrillo-Tudela, 2011. "Unemployment and Endogenous Reallocation over the Business Cycle," 2011 Meeting Papers 1101, Society for Economic Dynamics.
    2. Dmitry Plotnikov, 2014. "Hysteresis in Unemployment and Jobless Recoveries," IMF Working Papers 14/77, International Monetary Fund.
    3. William Hawkins & Carlos Carrillo-Tudela, 2014. "A Generalized Model of Stock-Flow Matching," 2014 Meeting Papers 1380, Society for Economic Dynamics.
    4. Maximiliano Dvorkin, 2013. "Sectoral Shocks, Reallocation and Unemployment in a Model of Competitive Labor Markets," 2013 Meeting Papers 1229, Society for Economic Dynamics.
    5. Ravn, Morten O. & Sterk, Vincent, 2017. "Job uncertainty and deep recessions," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 125-141.
    6. Carrillo-Tudela, Carlos & Hobijn, Bart & She, Powen & Visschers, Ludo, 2016. "The extent and cyclicality of career changes: Evidence for the U.K," European Economic Review, Elsevier, vol. 84(C), pages 18-41.
    7. Bauer, Anja, 2016. "Reallocation patterns across occupations in Germany," Economics Letters, Elsevier, vol. 148(C), pages 111-114.
    8. Lalé, Etienne, 2017. "Worker reallocation across occupations: Confronting data with theory," Labour Economics, Elsevier, vol. 44(C), pages 51-68.
    9. Carrillo-Tudela, Carlos & Visschers, Ludo, 2014. "Unemployment and Endogenous Reallocation over the Business Cycle," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-35, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Carrillo-Tudela, Carlos & Hobijn, Bart & She, Powen & Visschers, Ludo, 2015. "The Extent and Cyclicality of Career Changes: Evidence for the UK," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-52, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    11. Jacob Wong, 2017. "Aggregate Reallocation Shocks, Occupational Employment and Distance," School of Economics Working Papers 2017-09, University of Adelaide, School of Economics.
    12. Carlos Carrillo-Tudela & Bart Hobijn & Powen She & Ludo Visschers, 2014. "The Extent and Cyclicality of Career Changes: Evidence for the UK (first version)," ESE Discussion Papers 246, Edinburgh School of Economics, University of Edinburgh.
    13. Simon Mongey & Gianluca Violante & Alessandro Gavazza, 2014. "What Shifts the Beveridge Curve? Recruitment Effort and Financial Shocks," 2014 Meeting Papers 1014, Society for Economic Dynamics.
    14. William Hawkins & Carlos Carrillo-Tudela, 2016. "A Stock-Flow Theory of Unemployment with Endogenous Match Formation," 2016 Meeting Papers 1542, Society for Economic Dynamics.
    15. Bauer, Anja, 2015. "Reallocation patterns across occupations," IAB Discussion Paper 201526, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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