Some of the most well known facts among macroeconomists are that labor market flows are large and employment fluctuates over the business cycle. For the performance of an economy it is important how efficiently it can reallocate workers and jobs. With continual idiosyncratic and sector-specific shocks it is essential that the workforce can be reallocated to its most productive uses quickly and with minimal use of resources. Put differently, the size of labor market flows contain important information on the amount of frictions involved in the labor market.
Part of our ERC project is to gain a better understanding of the size of these frictions and their implications for aggregate productivity. At the same time, we aim at understanding cross-sectional wage inequality, as this constitutes an important building block of any model of household consumption, saving and financial decisions.
Publications & Working Papers
Quantifying the contribution of search to wage inequality
We empirically establish that one-third of job transitions leads to wage losses. Using a quantitative on-the-job search model, we find that 60 percent of them are movements down the job ladder. Accounting for them, our baseline calibration matches the large residual wage inequality in US data while attributing only 13.7 percent of overall wage inequality to the presence of search frictions in the labor market. We can trace the difference between ours and previous much higher estimates to our explicit modeling of nonvalue improving job-to-job transitions.
Labor Productivity, Job and Worker Flows in West and East-Germany
This paper analyzes non-convergence in factor productivity using the case of East and West-Germany. We show that labor productivity in East-Germany converged rapidly in the first years after reunification, but stays 30% below the West-German counterpart since 1994. Neither differences in legislation or factor inputs can explain this non-convergence. We use a new plant level data set on employment dynamics and show that part of the puzzle is less career mobility in the East. We rationalize this fact with a structural search model where workers invest less search effort because job turnover is higher in the East.
Cyclicality of Job and Worker Flows: New Data and a New Set of Stylized Facts
We study the relationship between cyclical job and worker flows at the plant level using a new data spanning from 1976-2006. We find that procyclical labor demand explains relatively little of procyclical worker flows. Instead, all plants in the employment growth distribution increase their worker turnover during booms. We also find that cyclical changes in the employment growth distribution are mostly driven by plants moving from inactivity to a growing labor force during booms. Consequently, increased labor turnover at growing plants is the main quantitative driver behing increased labor turnover during booms. We argue that on the job search models are able to capture non-parallel shifts in the employment growth distribution and procyclical conditional worker flows for a range of the growth distribution. Yet, they fail to rationalize procyclical accession rates for all shrinking and procyclical separation rates for all growing plants.
Wage Risk, Employment Risk and the Rise in Wage Inequality
We decompose changes to individual wage growth in US for the period 1984-2013 into permanent wage risk and employment risk stemming from workers changing heterogeneous jobs. We explicitly account for selection into employment and job mobility. We find that the dispersion in the wage offer distribution has increased over time. In addition, low-skilled female workers have experienced a rise in the permanent wage risk. Using a structural on-the-job search model, we show that these facts can explain 90% of the rise in within group wage inequality. The welfare costs of larger wage risk are quantitatively small.