This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. ASSA Annual Meeting
  3. 2021
  4. Preliminary Program
  5. Business Cycles and On-the-Job Search
« Back to Results

Business Cycles and On-the-Job Search

Paper Session

Tuesday, Jan. 5, 2021 12:15 PM - 2:15 PM (EST)

Hosted By: American Economic Association
  • Chair: Jason Faberman, Federal Reserve Bank of Chicago

Job Search Behavior among the Employed and Non-Employed

Jason Faberman
,
Federal Reserve Bank of Chicago
Andreas I. Mueller
,
University of Texas-Austin
Ayşegül Şahin
,
University of Texas-Austin
Giorgio Topa
,
Federal Reserve Bank of New York

Abstract

We develop a unique survey that focuses on the job search behavior of individuals regardless of their labor force status and field it annually starting in 2013. We use our survey to study the relationship between search effort and outcomes for the employed and non-employed. Three important facts stand out: (1) on-the-job search is pervasive, and is more intense at the lower rungs of the job ladder; (2) the employed are about four times more efficient than the unemployed in job search; and (3) the employed receive better job offers than the unemployed. We set up an on-the-job search model with endogenous search effort, calibrate it to fit our new facts, and find that the search effort of the employed is highly elastic. We show that search effort substantially amplifies labor market responses to job separation and matching efficiency shocks over the business cycle.

Firm Dynamics, On-the-Job Search, and Labor Market Fluctuations

Michael Elsby
,
University of Edinburgh
Axel Gottfries
,
University of Edinburgh

Abstract

We devise a tractable model of firm dynamics with on-the-job search. The model admits analytical solutions for equilibrium outcomes, including quit, layoff, hiring and vacancy-filling rates, as well as the distributions of job values, a fundamental challenge posed by the environment. Optimal labor demand takes a novel form whereby hiring firms allow their marginal product to diffuse over an interval. The evolution of the marginal product over this interval endogenously exhibits gradual mean reversion, evoking a notion of imperfect labor market competition. This in turn contributes to dispersion in marginal products, giving rise to endogenous misallocation. Mirroring establishment microdata, quit and layoff rates fall, while hiring and vacancy-filling rates rise with firm growth in the model. We further show how it is possible to solve for the dynamic equilibrium path of model outcomes—including the distribution of job values—out of steady state.

Bad Jobs and Low Inflation

Renato Faccini
,
Danmarks Nationalbank
Leonardo Melosi
,
Federal Reserve Bank of Chicago

Abstract

The low rate of inflation observed in the U.S. over the entire past decade is hard to reconcile with traditional measures of labor market slack. We show that an alternative notion of slack that encompasses workers’propensity to search on the job explains this missing inflation. We derive this novel concept of slack from a model in which a drop in the on-the-job search rate lowers the intensity of interfirm wage competition to retain or hire workers. The on-the-job search rate can be measured directly from aggregate labor-market flows and is countercyclical. Its recent drop is corroborated by micro data.

Job Ladder and Business Cycles

Felipe Alves
,
Bank of Canada

Abstract

I study the aggregate implications of job-to-job flows in a Heterogeneous Agents New Keynesian
model. Workers search on-the-job and cannot directly insure against the earnings risk
stemming from climbing and falling off the ladder. The state of the economy depends on the
distribution of workers over match productivity, earnings, and wealth. The job ladder is shown to have both supply and demand-side consequences over the business cycle: the employment reallocation over the ladder moves labor productivity in response to aggregate shocks, while workers’ demand for consumption reacts to changes in labor market flows. In the wake of an adverse financial shock, reallocation over the job ladder slows down, keeping workers stuck at low-productivity jobs. Aggregate productivity falls gradually over time, and drags down consumption and output even further. These patterns match the behavior of aggregates during and after the Great Recession, with the reduction in labor productivity explaining both the slow recovery and the missing disinflation.
JEL Classifications
  • J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers
  • E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy