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Heterogeneity and Cyclical Unemployment

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 wages across workers and realistic cyclical fluctuations in unemployment.

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File URL: http://rcer.econ.rochester.edu/RCERPAPERS/rcer_543.pdf
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Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 543.

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Length: 31 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:roc:rocher:543
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University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

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  12. Per Krusell & Toshihiko Mukoyama & Ayseg ul Sahin, 2007. "Labor-Market Matching with Precautionary Savings and Aggregate Fluctuations," Levine's Bibliography 122247000000001783, UCLA Department of Economics.
  13. Sider, Hal, 1985. "Unemployment Duration and Incidence: 1968-82," American Economic Review, American Economic Association, vol. 75(3), pages 461-72, June.
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  16. Marcus Hagedorn & Iourii Manovskii, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," 2005 Meeting Papers 460, Society for Economic Dynamics.
  17. Joao Gomes & Jeremy Greenwood & Sergio Rebelo, 1997. "Equilibrium Unemployment," NBER Working Papers 5922, National Bureau of Economic Research, Inc.
  18. Woodcock, Simon, 2006. "Wage Differentials in the Presence of Unobserved Worker, Firm, and Match Heterogeneity," MPRA Paper 1341, University Library of Munich, Germany.
  19. Dale T. Mortensen, 2005. "More on Unemployment and Vacancy Fluctuations," 2005 Meeting Papers 326, Society for Economic Dynamics.
  20. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  21. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
  22. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
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