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 wage growth across workers and realistic cyclical fluctuations in unemployment. (JEL
D31, E24, E32, J41, J63)
"Worker Heterogeneity and Endogenous Separations in a Matching Model of Unemployment Fluctuations."
American Economic Journal: Macroeconomics,
Personal Income, Wealth, and Their Distributions
Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
Business Fluctuations; Cycles
Labor Turnover; Vacancies; Layoffs