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Title: The Informational Content of Unemployment: Equilibrium Forces and Dynamics

Citation Type: Miscellaneous

Publication Year: 2012

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Abstract: In the standard analysis of employment dynamics, workers reach unemployment after being Öred. Firing standards rise during recessions, suggesting that the unemployment pool quality rises as well. I show that this is incorrectó a proper analysis of unemployment must also incorporate job leavers. Firings increase relative to quits during recessions, and I present empirical evidence that compositional shifts of this sort result in lower quality workers entering unemployment. I then develop a model of labor market equilibrium in which these compositional shifts arise endogenously, and I study the consequences for employment dynamics. The quality of the unemployment pool declines during recessions, and Örms limit hiring in response. For hiring to return, unemployment pool quality must recover via ináows of higher quality job leavers. In a signiÖcant recession, this recovery may be very slowó aggregate demand may return to pre-recession levels before unemployment pool quality does. This o§ers an explanation for jobless recoveries. The model also reconciles other observed empirical patterns, including countercyclical average labor productivity, a negative relationship between hiring probabilities and unemployment duration, and a convergence of hiring probabilities between the short- and long-term unemployed following increases in Örings and decreases in quits.

Url: http://www.econ.ucla.edu/welton/papers/2012/Mirkin Paper.pdf

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Authors: Mirkin, Kenneth

Publisher: UCLA Department of Economics

Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure, Population Data Science

Countries: United States