Unemployment and Endogenous Reallocation over the Business Cycle

Carlos Carrillo-Tudela and Ludo Visschers

MPRA Paper from University Library of Munich, Germany

Abstract: We build an analytically and computationally tractable stochastic equilibrium model of unemployment in heterogeneous labor markets. Facing search frictions within markets and reallocation frictions between markets, workers endogenously separate from employment and endogenously reallocate between markets, in response to changing aggregate and local conditions. Empirically, using the 1986-2008 SIPP panels, we document the occupational mobility patterns of the unemployed, finding notably that occupational change of unemployed workers is procyclical. The heterogeneous-market model yields highly volatile countercyclical unemployment, and is simultaneously consistent with procyclical reallocation, countercyclical separations and a negatively-sloped Beveridge curve. Moreover, the model exhibits unemployment duration dependence, which (when calibrated to long-term averages) responds realistically to the business cycle, creating substantial longer-term unemployment in downturns. Finally, the model is also consistent with different employment and reallocation outcomes as workers gain experience in the labor market, on average and over the business cycle.

Keywords: Unemployment; Business Cycle; Search; Endogenous Separations; Reallocation; Occupational Mobility (search for similar items in EconPapers)
JEL-codes: E32 J62 J64 (search for similar items in EconPapers)
Date: 2012-12-31
New Economics Papers: this item is included in nep-dge and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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