 Heterogeneity in labor mobility and unemployment flows across countriesEuropean Economic Review, 2023, vol. 155, issue C Abstract: Empirical studies of labor-market flows suggest cross-country differences in long-run aggregate unemployment inflows and outflows of a strikingly large magnitude. The canonical search-and-matching framework of Mortensen and Pissarides (1994, 1999b; the MP model) features small elasticities of steady-state unemployment flows with respect to firing costs, at odds with the idea that labor-market institutions such as employment protection policies are a primary driver of this variation. This paper shows that introducing permanent match-quality heterogeneity in the standard MP model substantially amplifies these elasticities. It then develops a quantitative search model with worker and job heterogeneity consistent with U.S. worker-flow data. This model implies that employment protection differences plausibly account for most of the long-run unemployment-flow variation across high-income countries. In sharp contrast, shutting down heterogeneity implies that large changes in matching efficiency are required to explain the same cross-country variation. Keywords: Unemployment; Worker flows; Search frictions; Heterogeneity; Labor-market institutions; Firing costs (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:155:y:2023:i:c:s0014292123000703 DOI: 10.1016/j.euroecorev.2023.104441 Access Statistics for this article European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer More articles in European Economic Review from Elsevier |
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