Recall and Unemployment

Using data from the Survey of Income and Program Participation (SIPP) covering 1990-2013, we document that a surprisingly large number of workers return to their previous employer after a jobless spell, and experience very different unemployment and employment outcomes than job switchers. Furthermore, the probability of recall is much less cyclical and volatile than the probability of finding a new job. Building on these facts, we introduce a recall option in a canonical search-and-matching business- cycle model of the labor market. The recall option is lost when the unemployed worker accepts a new job. New matches are mediated by a matching function, which brings together costly vacancy postings and costly search effort by unemployed workers. In contrast, recalls are frictionless and free, and triggered both by aggregate and job-specific shocks. A quantitative version of the model captures well our cross-sectional and cyclical facts through selection of recalled matches. Model analysis shows that recall and search effort significantly amplify the cyclical volatility of job finding and separation rates.