Labor Market Dynamics
Saturday, Jan. 5, 2019 10:15 AM - 12:15 PM
- Chair: Pawel Krolikowski, Federal Reserve Bank of Cleveland
Cyclical Earnings and Employment Transitions
AbstractRecessions 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
AbstractLabor 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
AbstractThis 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.
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
- E3 - Prices, Business Fluctuations, and Cycles