Modeling Matched Job-Worker Flows

Abstract

What can one infer about labor market flows from matched employer- employee panel data? The purpose of this paper is to sketch possible answers to this question. A general but simple labor market equilibrium model of hire and separation flows is developed in the paper. The model embodies the hypothesis that worker productivity differs across employers and that worker and employer flows reflect responses to these differences in a labor market characterized by friction. In the modeled market, each agent acts optimally taking as given the wage offer distribution and market tightness and these in turn are determined by their collective action. The existence of a labor market equilibrium is established under two different wage determination models: rent sharing and wage posting. A demonstration that market flow parameters, search and recruiting effort functions, and the equilibrium wage distribution can be estimated with matched job-work flow data is the principal contribution of the paper.