Terms of Trade Shocks and Endogenous Search Unemployment: A Two‐Sector Model with Non‐Traded Goods

We develop a simple and tractable two‐sector search model featuring a non‐traded sector and endogenous search unemployment to examine the impact of terms of trade shocks on unemployment. We show that changes in terms of trade will not only lead to employment reallocation across sectors, as in the traditional trade models, but, more importantly, impact upon search unemployment within each sector. Specifically, we show that an improvement (deterioration) of terms of trade reduces (increases) unemployment rates in both traded and non‐traded sectors.     

Unobserved Heterogeneity,Exit Rates,and Re‐Employment Wages

Exit rates from unemployment and re‐employment wages decline over a period of unemployment, after controlling for worker observable characteristics. We study the role of unobserved heterogeneity in an economy with asymmetric information and directed search. We show that the unique equilibrium is separating and that skilled workers have more job opportunities and higher wages. The composition of the unemployed varies with the duration of unemployment, so average exit rates and wages fall with time. The separating equilibrium relies on performance‐related pay schemes and the ability of firms to commit to renting an input that is complementary to worker skills.     

JOB FLOWS AND UNEMPLOYMENT IN AN EQUILIBRIUM UNEMPLOYMENT MODEL WITH FIRM‐SPECIFIC SKILL TRAINING*

We introduce productivity enhancing firm‐specific skill training into the labour search model in which the firm‐specific skill training intensity and the job destruction rate are endogenously determined. It is shown that the higher the intensity of such training, the lower the rates of unemployment, job creation and job destruction. The paper's model provides a theoretical framework to understand the often mentioned peculiarity of the Japanese labour market; prevalently low rates of unemployment, job creation and job destruction in Japan are due to its training system which promotes workers to acquire firm‐specific skills.     

Introducing Time‐to‐Educate in a Job‐Search Model

Transition patterns from school to work differ considerably across OECD countries. Some countries exhibit high youth unemployment rates, which can be considered an indicator of the difficulty facing young people trying to integrate into the labour market. At the same time, education is a time‐consuming process, and enrolment and dropout decisions depend on expected duration of studies as well as on job prospects with and without completed degrees. One way to model entry into the labour market is by means of job‐search models, where the job arrival hazard is a key parameter in capturing the ease or difficulty in finding a job. Standard models of job search and education assume that skills can be upgraded instantaneously (and mostly in the form of on‐the‐job training) at a fixed cost. This paper models education as a time‐consuming process, a concept which we call time‐to‐educate, during which an individual faces the trade‐off between continuing education and taking up a job.     

CRIME AND POVERTY: A SEARCH‐THEORETIC APPROACH*

Numerous studies document that criminal activity is positively related to unemployment and negatively related to educational attainment levels within given communities. We study this phenomenon in the context of a search‐equilibrium model, in which agents choose between formal employment and pursuing crime‐related activities (theft). Prior to their “occupational choices,” agents undertake costly schooling, raising their productivity. Crime acts, in essence, as a tax on human capital by affecting the probability that a worker's earnings (possessions) are subsequently appropriated. There are multiple equilibria. High crime, low levels of educational attainment, long spells of unemployment, and poverty are correlated across them.     

Job Creation, Job Destruction, and the International Division of Labor

The authors incorporate equilibrium unemployment due to imperfect matching into a model of trade in intermediate inputs. Firms are assumed to be price‐takers and their size is given by technology. Firms enter the market as long as expected profits cover the search cost they incur initially; jobs are endogenously destroyed by random shocks that affect firms’ price–cost margins. Trade increases productivity in the final good and then demand for each intermediate input. Steady‐state unemployment is reduced after trade integration because the rate of job destruction is reduced, which in turn induces an indirect positive effect on job creation. A more volatile environment faced by firms does not necessarily increase unemployment. However, the rate of job destruction unambiguously rises, and rises more under free trade.     

LIFE‐CYCLE LABOR SEARCH WITH STOCHASTIC MATCH QUALITY

In the United States, unemployment, job finding, and separation rates decline as worker age increases. To explain these facts, we build a search and matching model of the labor market that incorporates a life‐cycle structure and features random match quality as well as human capital accumulation. The calibrated model successfully reproduces the empirical patterns of unemployment and job transition rates over the life cycle and generates plausible wage implications. We then explore the efficiency implications of the model and find that the differences between the market and planner allocations are more important for older workers.     

ON‐THE‐JOB SEARCH,PRODUCTIVITY SHOCKS,AND THE INDIVIDUAL EARNINGS PROCESS*

Individual labor earnings observed in worker panel data have complex, highly persistent dynamics. We investigate the capacity of a structural job search model with on‐the‐job search, wage renegotiation by mutual consent, and i.i.d. productivity shocks to replicate salient properties of these dynamics, such as the covariance structure of earnings, the evolution of individual earnings mean, and variance with the duration of uninterrupted employment, or the distribution of year‐to‐year earnings changes. Structural estimation of our model on a 12‐year panel of highly educated British workers shows that our simple framework produces a dynamic earnings structure that is remarkably consistent with the data.     

Absenteeism,Efficiency Wages,and Marginal Taxes

In this paper, I test the argument that increased taxes on earnings correspond to increased incentives to shirk, thus causing an increase in the rate of worker absenteeism. After fixed job effects are taken into account, panel register data on prime‐age Norwegian males who work full‐time show that a higher marginal net‐of‐earnings‐tax rate reduces the rate of absenteeism. When the net‐of‐tax rate is increased by 1.0 percent, absenteeism decreases by 0.3?0.5 percent. Injury‐related absences are less affected by tax changes than other absences. Absenteeism becomes more sensitive to tax changes as the occupational unemployment rate increases.     

Measuring Search Frictions Using Japanese Microdata

This paper estimates individual‐level matching functions to measure search frictions in the Japanese labour market and presents the determinants of search duration. We employ administrative microdata that track the job search process of job seekers who left or lost their job in August 2005 and subsequently registered at their local public employment service. Our finding is that the matching function exhibits decreasing rather than constant returns‐to‐scale for job seekers and vacancies. We also find that after controlling for the benefits period, job seekers who lost their job involuntarily were more likely than those quitting voluntarily to exit from unemployment.     

ASSET‐BASED UNEMPLOYMENT INSURANCE*

This article studies a model of consumption, savings, and job search in which a borrowing constraint limits self‐insurance. The government administers the unemployment insurance program that may condition on an individual’s asset position, but not on her efforts of finding a job. To compensate for the impediments to self‐insurance, benefit payments should optimally be set higher at lower wealth levels and peak for borrowing‐constrained individuals with zero liquid funds. A quantitative exercise reveals that the U.S. unemployment insurance program is surprisingly close to optimal for the asset poor, but far too generous for wealthier individuals.     

Monitoring Job Offer Decisions,Punishments, Exit to Work,and Job Quality

Unemployment insurance systems include the monitoring of unemployed workers and punitive sanctions if job search requirements are violated. We analyze the causal effect of sanctions on the ensuing job quality, notably on wages and occupational level. We use Swedish data and estimate duration models dealing with selection on unobservables. We also develop a theoretical job search model that monitors job offer rejection versus job search effort. The empirical results show that, after a sanction, the wage rate is lower and individuals move more often to a part‐time job and a lower occupational level, incurring human capital losses.     

Search in cities

The aim of this paper is to expose the recent developments of urban search models which incorporate a land market into a search-matching framework. Using these models, we will be able to explain why unemployment rates vary within a city, how city structure affects workers’ labor-market outcomes, how unemployment benefits and the job-destruction rate affect the growth of cities and why workers living far away from job centers search less intensively and experience higher unemployment rates than those residing closer to jobs. We are also able to explain why, as compared to whites, black workers spend more time commuting to work but travel less miles and search for jobs over a smaller area.     

Job Security,Financial Security and Worker Well‐being: New Evidence on the Effects of Flexible Employment

This paper uses panel data drawn from the Household, Income and Labour Dynamics in Australia (HILDA) survey to provide new evidence of the links between unemployment, wages, job security, financial security and workers' well‐being for workers in flexible employment. Our findings indicate that workers in flexible employment encounter more unemployment and experience increased job insecurity; unemployment is associated with wage penalties. Lower wages, job insecurity and financial insecurity affect well‐being. However, these negative outcomes are mitigated by longer job tenure. Our results have implications for moves towards a flexicurity model of employment     

Optimal unemployment insurance and redistribution

We characterize optimal income taxation and unemployment insurance in a search‐matching framework where both voluntary and involuntary unemployment are endogenous and Nash bargaining determines wages. Individuals decide whether to participate as job seekers and if so, how much search effort to exert. Unemployment insurance trades off insurance versus search and participation incentives. We also allow for different productivity types so there is a redistributive role for the income tax and show that a piecewise linear wage tax internalizes the macro effects arising from endogenous wages. Type‐specific lump‐sum taxes and transfers can then redistribute between individuals of differing skills and employment states. Our analysis embeds optimal unemployment insurance into an extensive‐margin optimal redistribution framework where transfers to the involuntarily and voluntarily unemployed can differ, and nests several standard models in the literature.     

On the Provision of Insurance against Search‐Induced Wage Fluctuations*

Should workers be provided with insurance against search‐induced wage fluctuations? To answer this question, I rely on the numerical simulations of a model of on‐the‐job search and precautionary savings. The model is calibrated to low‐skilled workers in the United States. The extent of insurance is determined by the degree of progressivity of a non‐linear transfer schedule. The fundamental trade‐off is that a more generous provision of insurance reduces incentives to search for better‐paying jobs, which increases the cost of providing insurance. I show that progressivity raises the search intensity of unemployed workers, which reduces the equilibrium rate of unemployment, but it lowers the search intensity of employed job seekers, which reduces the output level. I also solve numerically for the optimal non‐linear transfer schedule. The optimal policy is to provide little insurance up to a monthly income level of $1350, so as to preserve incentives to move up the wage ladder, and nearly full insurance above $1450. This policy reduces the standard deviation of labor income net of transfers by 34 per cent and generates a consumption‐equivalent welfare gain of 0.7 per cent. The absence of private savings does not fundamentally change the shape of the optimal transfer function, but tilts the optimal policy towards more insurance, at the expense of a less efficient allocation of workers across jobs.     

Job search and academic achievement

The paper develops a structural model for the labor market behavior of students entering the labor market. We explicitly model the trade-off between devoting effort to studying and to job search. Furthermore, we allow for on-the-job search. The model is estimated using a unique data set of individuals who completed undergraduate education in the Netherlands between 1995 and 2001. Our estimation results show that labor market returns of high grades are low. Wage increases between jobs are explained by labor market friction rather than returns of early work experience. Our results indicate that a 1 percentage point decrease in the unemployment rate increases wage offers on average by 3 percent, but that the amount of job search effort is not very sensitive to business cycle fluctuations. Policy simulations show that study effort and hence academic achievement are much more sensitive to financial incentives than job search effort and labor market outcomes.     

Worker flows, job flows and unemployment in a matching model

Standard matching models of unemployment generate far too little volatility in unemployment and vacancies relative to the variation in the shock variables. Shimer (2005) showed that in US data the vacancy-to-unemployment ratio is about 26 times more volatile than the standard model predicts. He identified the flexibility of wages as the key issue and triggered a heated debate on possible improvements of the core model to accommodate these empirical facts. In this paper, we first document Shimer's facts for the UK and find them to be qualitatively similar to US facts. We then develop and calibrate a model based on the Mortensen and Pissarides approach that increases the volatility of the v/u ratio 20-fold compared to the standard framework. The key features of our model relate to the job creation decision by firms and the search options of workers. We allow these to search whilst employed, and firms to re-advertise jobs that have been quit from. This leads us to use a different job creation process, whereby potential vacancies, or job ‘ideas’, arise at a finite rate per period over a range of idiosyncratic productivities. Calibrating the model to UK data, we show that it delivers volatility in unemployment and vacancies much closer to, though still not as large as, that observed for the UK, whilst retaining the standard wage determination process.     

STRUCTURAL EMPIRICAL EVALUATION OF JOB SEARCH MONITORING

To evaluate search effort monitoring of unemployed workers, it is important to take account of post‐unemployment wages and job‐to‐job mobility. We structurally estimate a model with search channels, using a controlled trial in which monitoring is randomized. The data include registers and survey data on search behavior. We find that the opportunity to move to better‐paid jobs in employment reduces the extent to which monitoring induces substitution toward formal search channels in unemployment. Job mobility compensates for adverse long‐run effects of monitoring on wages. We examine counterfactual policies against moral hazard, like reemployment bonuses and changes of the benefits path.     

Crime during the business cycle: urban–rural differences

Despite the abundant literature on how crime evolves over the business cycle, no consensus has arisen whether crime increases or decreases during recessions. The literature provides both positive and negative associations between the crime rate and the unemployment rate, a commonly used proxy for the business cycle. This study revisits this issue and uses county-level data from 1990 to 2013. It allows for differences as to how unemployment relates to both property crime and violent crime depending on the size of the counties. We find evidence of a positive association between unemployment and property crime that strengthens with county size. The results show the same pattern for violent crime but are statistically weaker. Our findings suggest that the positive association between property crime and unemployment that others have found is largely driven by more populous areas.