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The Macrodynamics of Sorting between Workers and Firms

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  • Jeremy Lise

    (University College of London)

  • Jean-Marc Robin

    (Département d'économie)

Abstract

We develop an equilibrium model of on-the-job search with ex ante heterogeneous workers and firms, aggregate uncertainty, and vacancy creation. The model produces rich dynamics in which the distributions of unemployed workers, vacancies, and worker-firm matches evolve stochastically over time. We prove that the surplus function, which fully characterizes the match value and the mobility decision of workers, does not depend on these distributions. This result means the model is tractable and can be estimated. We illustrate the quantitative implications of the model by fitting to US aggregate labor market data from 1951-2012. The model has rich implications for the cyclical dynamics of the distribution of skills of the unemployed, the distribution of types of vacancies posted, and sorting between heterogeneous workers and firms.

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  • Jeremy Lise & Jean-Marc Robin, 2017. "The Macrodynamics of Sorting between Workers and Firms," Sciences Po publications info:hdl:2441/2gm7u1h28o9, Sciences Po.
    • Handle: RePEc:spo:wpmain:info:hdl:2441/2gm7u1h28o97arriihp43sr90l
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    References listed on IDEAS

    as
    1. Giuseppe Moscarini & Fabien Postel-Vinay, 2013. "Stochastic Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 80(4), pages 1545-1581.
    2. 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.
    3. Jeremy Lise & Jean-Marc Robin, 2017. "The Macrodynamics of Sorting between Workers and Firms," American Economic Review, American Economic Association, vol. 107(4), pages 1104-1135, April.
    4. Menzio, Guido & Shi, Shouyong, 2010. "Block recursive equilibria for stochastic models of search on the job," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1453-1494, July.
    5. Leo Kaas & Philipp Kircher, 2015. "Efficient Firm Dynamics in a Frictional Labor Market," American Economic Review, American Economic Association, vol. 105(10), pages 3030-3060, October.
    6. Fabien Postel-Vinay & Hélène Turon, 2010. "On-The-Job Search, Productivity Shocks, And The Individual Earnings Process," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(3), pages 599-629, August.
    7. Jean‐Marc Robin, 2011. "On the Dynamics of Unemployment and Wage Distributions," Econometrica, Econometric Society, vol. 79(5), pages 1327-1355, September.
    8. Leena Rudanko, 2011. "Aggregate and Idiosyncratic Risk in a Frictional Labor Market," American Economic Review, American Economic Association, vol. 101(6), pages 2823-2843, October.
    9. Guido Menzio & Shouyong Shi, 2010. "Directed Search on the Job, Heterogeneity, and Aggregate Fluctuations," American Economic Review, American Economic Association, vol. 100(2), pages 327-332, May.
    10. Melvyn G. Coles & Dale T. Mortensen, 2016. "Equilibrium Labor Turnover, Firm Growth, and Unemployment," Econometrica, Econometric Society, vol. 84, pages 347-363, January.
    11. Guido Menzio & Shouyong Shi, 2011. "Efficient Search on the Job and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 468-510.
    12. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
    13. Jeremy Lise & Jean-Marc Robin, 2017. "The Macrodynamics of Sorting between Workers and Firms," American Economic Review, American Economic Association, vol. 107(4), pages 1104-1135, April.
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    15. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen J. Terry, 2012. "Really Uncertain Business Cycles," NBER Working Papers 18245, National Bureau of Economic Research, Inc.
    16. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
    17. Shouyong Shi, 2009. "Directed Search for Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 77(2), pages 561-584, March.
    18. Giuseppe Moscarini & Fabien Postel-Vinay, 2010. "Unemployment and Small Cap Returns: The Nexus," American Economic Review, American Economic Association, vol. 100(2), pages 333-337, May.
    19. Gadi Barlevy, 2002. "The Sullying Effect of Recessions," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 65-96.
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    22. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-690, September.
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    Cited by:

    1. repec:eee:labeco:v:50:y:2018:i:c:p:20-31 is not listed on IDEAS
    2. Henry Hyatt & Erika McEntarfer & John Haltiwanger, 2014. "Cyclical Reallocation of Workers Across Large and Small Employers," 2014 Meeting Papers 735, Society for Economic Dynamics.
    3. Ludo Visschers & Carlos Carrillo-Tudela, 2011. "Unemployment and Endogenous Reallocation over the Business Cycle," 2011 Meeting Papers 1101, Society for Economic Dynamics.
    4. Pietro Garibaldi & Espen Moen & Dag-Einar Sommervoll, 2016. "Competitive On-the-job Search," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 88-107, January.
    5. Jeremy Lise & Jean-Marc Robin, 2017. "The Macrodynamics of Sorting between Workers and Firms," American Economic Review, American Economic Association, vol. 107(4), pages 1104-1135, April.
    6. Lalé, Etienne, 2018. "Loss of skill and labor market fluctuations," Labour Economics, Elsevier, vol. 50(C), pages 20-31.
    7. Murtin, Fabrice & Robin, Jean-Marc, 2018. "Labor market reforms and unemployment dynamics," Labour Economics, Elsevier, vol. 50(C), pages 3-19.
    8. Gregor Jarosch, 2014. "Falling off the Ladder - Earnings Losses from Job Loss," 2014 Meeting Papers 1248, Society for Economic Dynamics.
    9. Kyle Herkenhoff & Gordon Phillips & Ethan Cohen-Cole, 2017. "How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output," Working Papers 2017-012, Human Capital and Economic Opportunity Working Group.
    10. Espen R Moen & Rasmus Lentz, 2017. "Competitive or Random Search?," 2017 Meeting Papers 1128, Society for Economic Dynamics.
    11. Jeremy Lise & Jean-Marc Robin, 2017. "The Macrodynamics of Sorting between Workers and Firms," American Economic Review, American Economic Association, vol. 107(4), pages 1104-1135, April.
    12. Jinkins, David & Morin, Annaig, 2017. "Job-to-Job Transitions, Sorting, and Wage Growth," IZA Discussion Papers 10601, Institute for the Study of Labor (IZA).
    13. Eliason, Marcus & Hensvik, Lena & Kramarz, Francis & Nordström Skans, Oskar, 2017. "The causal impact of social Connections on firms' outcomes," Working Paper Series 2017:11, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    14. Kevin Fawcett & Shouyong Shi, 2018. "Learning, On-the-Job Search and Wage-Tenure Contracts," Working Papers tecipa-597, University of Toronto, Department of Economics.
    15. Kyle Herkenhoff & Gordon Phillips & Ethan Cohen-Cole, 2016. "How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output," NBER Working Papers 22274, National Bureau of Economic Research, Inc.
    16. Florian Hoffmann & Shouyong Shi, 2016. "Burdett-Mortensen Model of On-the-Job Search with Two Sectors," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 108-134, January.
    17. Michael W. L. Elsby & Ryan Michaels & David Ratner, 2015. "The Beveridge Curve: A Survey," Journal of Economic Literature, American Economic Association, vol. 53(3), pages 571-630, September.
    18. Kyle Herkenhoff & Gordon Phillips & Ethan Cohen-Cole, 2016. "How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output," Working Papers 16-25, Center for Economic Studies, U.S. Census Bureau.
    19. Julio Blanco & Gaston Navarro, 2016. "The Unemployment Accelerator," CESifo Working Paper Series 6248, CESifo Group Munich.
    20. repec:eee:reecon:v:71:y:2017:i:3:p:373-383 is not listed on IDEAS

    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
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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