A Theory of Labor Markets with Inefficient Turnover

Andres Blanco, Andres Drenik, Christian Moser and Emilio Zaratiegui

No 17808, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We develop a theory of labor markets with four features: search frictions, worker productivity shocks, wage rigidity, and two-sided lack of commitment. Inefficient job separations occur in the form of endogenous quits and layoffs that are unilaterally initiated whenever a worker’s wage-to-productivity ratio moves outside an inaction region. We derive sufficient statistics for the labor market response to aggregate shocks based on the distribution of workers’ wage-to-productivity ratios. These statistics crucially depend on the incidence of inefficient job separations, which we show how to identify using readily available microdata on wage changes and worker flows between jobs.

Keywords: Wage rigidity; Directed search; Limited commitment; Job Separations; Inflation (search for similar items in EconPapers)
JEL-codes: E31 E52 J64 (search for similar items in EconPapers)
Date: 2023-01
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Working Paper: A Theory of Labor Markets with Inefficient Turnover (2024)
Working Paper: A Theory of Labor Markets with Inefficient Turnover (2024)
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