Worker Flows, Job Flows and Unemployment in a Matching Model

Standard matching models of unemployment assume that workers and job flows are identical. This is in stark contrast to empirical evidence that job flows in fact only account for a fraction of worker ßows, that unemployment exits only account for a fraction of hires and that these fractions vary over the cycle. In this paper, we develop and calibrate a model based on the Mortensen and Pissarides approach but that emphasises this issue. We show that this matters - that it has very different implications for our view of unemployment dynamics. The key features of our model relate to the search options of the worker, and the job creation decision by firms. We allow workers to search whilst employed, and firms to re-advertise jobs that have been quit from. This leads us to use a different job creation process, whereby potential vacancies, or job 'ideas', arise at a finite rate per period over a range of idiosyncratic productivities. In the standard setting, there is an unlimited supply of potential vacancies at the top idiosyncratic productivity. The main results are as follows. First, the presence of on-the-job search has a substantial impact on labour market equilibrium, whereby equilibrium unemployment is lower and exhibits a higher turnover rate. On-the-job search renders the unemployment inflow rate more sensitive to the cycle: in all cases, the inflow rate is found to be more cyclically sensitive than the outflow rate, suggesting that most unemployment dynamics occur through this channel. This confrms empirical results for Great Britain (Burgess and Turon (2005)). Second, our model offers some insight into a (two-way) relationship between job-to-job flows, which drives the difference between worker and job flows, and the extent of wage dispersion. More wage dispersion increases the incentive to search on-the-job and more on-the-job search widens the range of viable productivities and leads to lower wages at the bottom of the wage distribution, thereby increasing wage dispersion. Third, changes in the model's exogenous parameters impact unemployment to a considerable degree by changing the level of employed job search.Unemployment, on-the-job search, worker flows, job flows, matching.

Unemployment equilibrium and on-the-job search

This paper uses the search and matching framework to explore the impact of employed job search on the labour market. We allow for endogenous employed job search, endogenous job destruction and heterogenous job creation. Job flows and workers flows do not coincide as we allow for job-to-job flows, firms' churning of workers and labour force entries and exits. Employed job search is shown to have a substantial impact on unemployment dynamics but a negligible one on the level of unemployment. It also plays a key role in propagating a shock to institutions or to the economy to the labour market.unemployment, on-the-job search, job destruction, business cycles, matching

The Cyclical Behavior of Equilibrium Unemployment and Vacancies – A Comment

The Mortensen-Pissarides model is an attractive model because it is tractable, delivers some intuitive comparative statics and permits policy analysis. However, Shimer (2005) shows that the model generates far too little volatility in its key variables - unemployment and vacancies - relative to the variation in the shock variables. Shimer identifes the flexibility of wages as the key issue. In this Comment, we show that it is possible to generate suffcient volatility in unemployment and vacancies whilst retaining the standard wage determination process. We set out a model with two important changes from the Mortensen-Pissarides approach: job search by the employed is allowed, and the vacancy creation condition is changed to allow churning of workers. Calibrating the model to UK data, we show that our model can produce volatility in the unemployment and vacancy series to match the data; we confirm for the UK that the Mortensen-Pissarides model cannot, as shown by Shimer for the US.Unemployment, on-the-job search, worker flows, job flows, matching.

Salaires et emploi dans les secteurs public et privé. Différences et interactions

Differences in wages and in employment between the public and the private sectors are not only present in a static comparison. Dynamic features of employment such as returns to experience, wage volatility and job security also exhibit differences across the two sectors. In the first part of this paper we document these differences in six European countries over the period 1994-2001 using the European Community Household Panel. This enables us to evaluate lifetime premia offered by public sector employment in these countries. In the second part of the paper we present a structural model of the labour market with a public sector, which allows us to quantify the response of the labour market as a whole to various public sector policies in terms of employment and wages. This structural approach enables us to assess and compare the potential impact of alternative polices aimed at reducing the public sector wage bill

Unemployment dynamics, duration and equilibrium: evidence from Britain

This paper challenges the consensus on the nature of unemployment dynamics in Britain. We show that the argument that changes in unemployment arise mostly from changes in the duration of unemployment (rather than in the chance of becoming unemployed) is flawed. In fact, while shocks to the outflow do have a part to play up to the late 1970s, the huge changes in unemployment over the last two decades have been mostly driven by inflow shocks. Our model also provides a new explanation of aggregate unemployment persistence based on externalities at a market level rather than individual-level persistence

Public sector wage policy and labor market equilibrium: a structural model

We develop and estimate a structural model that incorporates a sizable public sector in a labor market with search frictions. The wage distribution and the employment rate in the public sector are taken as exogenous policy parameters. Overall wage distribution and employment rate are determined within the model, taking into account the private sector’s endogenous response to public sector employment policies. Job turnover is sector specific and transitions between sectors depend on the worker’s decision to accept alternative employment in the same or different sector by comparing the value of employment in the current and prospective jobs. The model is estimated on British data by a method of moments. We use the model to simulate the impact of various counterfactual public sector wage and employment policies