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Labor Market Dynamics

Paper Session

Saturday, Jan. 5, 2019 10:15 AM - 12:15 PM

Atlanta Marriott Marquis, L503
Hosted By: Econometric Society
  • Chair: Pawel Krolikowski, Federal Reserve Bank of Cleveland

Competitive or Random Search?

Rasmus Lentz
,
University of Wisconsin-Madison
Espen Moen
,
Norwegian Business School
Jonas Maibom
,
Aarhus University

Abstract

We set up a search model with on-the-job search that spans random and competitive search as well as intermediate cases with partially directed search. Firms are heterogeneous in terms of productivity, and firms with different productivities are in different submarkets, with all firms in the same submarket being identical. Workers are identical, still a worker's optimal search behavior, that is, the optimal submarket for her to visit, depends on the productivity of the current employer. The higher is the productivity of the current employer, the higher is the productivity of the firm it is optimal for the worker to target her search at. We use a discrete choice framework to model the workers’ choice of submarkets, with a single noise parameter mu governing the degree to which search is directed. As mu goes to zero, search becomes fully directed, while it becomes random as mu goes to infinity. We derive the equilibrium of the model, and simulate the equilibrium allocation. We also show how the parameter mu can be identified using a maximum likelihood approach where submarkets are identified via the Bagger and Lentz (2016) poaching rank, or in a classification step as in Lentz, Piyapromdee and Robin (2017). Alternatively, we use a simulated method of moments approach. We will identify mu on Danish and/or Norwegian matched employer-employee data.

Cyclical Earnings and Employment Transitions

Carlos Carrillo-Tudela
,
University of Essex
Ludo Visschers
,
University of Edinburgh
David Wiczer
,
State University of New York-Stony Brook

Abstract

Recessions increase unemployment risk and decrease job and occupation flows. This paper connects cyclical differences in the earnings change distribution with cyclical differences in workers flows. Earnings changes are typically larger when workers change jobs and even larger when switching occupation. This implies that the incidence of flows directly affects earnings changes. However, the business cycle also affects earnings outcomes conditional on a job, employment status and/or occupation change. We formally decompose cyclical movements in the earnings change distribution into worker-flow components and `returns’ components. Then, because job and occupation switching are endogenous, we look through the lens of a business cycle model with on-the-job search and occupational mobility to rationalize observed behaviour, thereby distinguishing who moves and why, and how this relates to the underlying risks workers face.

The Aggregate Effects of Labor Market Frictions

Michael Elsby
,
University of Edinburgh
Ryan Michaels
,
Federal Reserve Bank of Philadelphia
David Ratner
,
Federal Reserve Board

Abstract

Labor market frictions are able to induce sluggish aggregate employment dynamics. However, these frictions have strong implications for the source of this propagation: they distort the path of aggregate employment by impeding the flow of labor across firms. For a canonical class of frictions, we show how observable measures of such flows can be used to assess the effect of frictions on aggregate employment dynamics. Application of this approach to establishment microdata for the United States reveals that the empirical flow of labor across firms deviates markedly from the predictions of canonical labor market frictions. Despite their ability to induce persistence in aggregate employment, firm-size flows in these models are predicted to respond aggressively to aggregate shocks, but react sluggishly in the data. The paper therefore concludes that the propagation mechanism embodied in standard models of labor market frictions fails to account for the sources of observed employment dynamics.

Job Heterogeneity and Aggregate Labor Market Fluctuations

Pawel Krolikowski
,
Federal Reserve Bank of Cleveland

Abstract

This paper disciplines a model with search over match-quality using microeconomic evidence on worker mobility patterns and wage dynamics. In addition to capturing these individual data, the model provides an explanation for aggregate labor market patterns. Poor match-quality among first jobs implies large fluctuations in unemployment due to a responsive job destruction margin. Endogenous job destruction generates a burst of layoffs at the onset of a recession and, together with on-the-job search, generates a negative comovement between unemployment and vacancies. A significant job ladder, consistent with empirical wage dispersion, provides ample scope for the propagation of vacancies and unemployment.
Discussant(s)
Laura Pilossoph
,
Federal Reserve Bank of New York
Christopher Huckfeldt
,
Cornell University
Regis Barnichon
,
Federal Reserve Bank of San Francisco
Riccardo Zago
,
Sciences Po
JEL Classifications
  • E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
  • E3 - Prices, Business Fluctuations, and Cycles