A Model of Job and Worker Flows

Abstract

We develop a model of gross job and worker flows and use it to study how the wages, permanent incomes and employment status of individual workers evolve over time and how they are affected by aggregate labor market conditions. Our model helps explain various other features of labor markets, such as the size and persistence of the changes in income that workers experience due to displacements or job-to-job transitions, the length of job tenures and unemployment duration, and the amount of worker turnover in excess of job reallocation. We also examine the effects that labor market institutions and public policy have on the gross flows, as well as on the resulting wage distribution, employment and aggregate output in the equilibrium. From a theoretical point of view, we study the extent to which the competitive equilibrium achieves an efficient allocation of resources.