Working Paper: CEPR ID: DP17808
Authors: Andres Blanco; Andres Drenik; Christian Moser; Emilio Zaratiegui
Abstract: We develop a theory of labor markets with four features: search frictions, worker productivity shocks, wage rigidity, and two-sided lack of commitment. Inefficient job separations occur in the form of endogenous quits and layoffs that are unilaterally initiated whenever a worker’s wage-to-productivity ratio moves outside an inaction region. We derive sufficient statistics for the labor market response to aggregate shocks based on the distribution of workers’ wage-to-productivity ratios. These statistics crucially depend on the incidence of inefficient job separations, which we show how to identify using readily available microdata on wage changes and worker flows between jobs.
Keywords: quits; layoffs; inflation
JEL Codes: E12; E31; D31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| search frictions, productivity shocks, wage rigidity, and a two-sided lack of commitment (J29) | inefficient job separations (J63) |
| inefficient job separations (J63) | labor market's response to aggregate shocks (E24) |
| distribution of workers' wage-to-productivity ratios (J39) | labor market's response to aggregate shocks (E24) |
| TFP shock (F16) | aggregate employment (E10) |
| share of inefficient job separations (J63) | cumulative impulse response of aggregate employment to TFP shock (E24) |
| frequency of layoffs compared to quits (J63) | positive response of employment to TFP shocks (J68) |