Working Paper: NBER ID: w13231
Authors: Mark Bils; Yongsung Chang; Sunbin Kim
Abstract: We introduce worker differences in labor supply, reflecting differences in skills and assets, into a model of separations, matching, and unemployment over the business cycle. Separating from employment when unemployment duration is long is particularly costly for workers with high labor supply. This provides a rich set of testable predictions across workers: those with higher labor supply, say due to lower assets, should display more procyclical wages and less countercyclical separations. Consequently, the model predicts that the pool of unemployed will sort toward workers with lower labor supply in a downturn. Because these workers generate lower rents to employers, this discourages vacancy creation and exacerbates the cyclicality of unemployment and unemployment durations. We examine wage cyclicality and employment separations over the past twenty years for workers in the Survey of Income and Program Participation (SIPP). Wages are much more procyclical for workers who work more. This pattern is mirrored in separations; separations from employment are much less cyclical for those who work more. We do see for recessions a strong compositional shift among those unemployed toward workers who typically work less.
Keywords: wage cyclicality; employment separations; business cycle; labor supply; unemployment
JEL Codes: E2; E24; E32; J6; J63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher labor supply (J20) | more procyclical wages (J39) |
| higher labor supply (J20) | less countercyclical separations (J65) |
| lower asset holdings (D14) | higher labor supply (J20) |
| higher labor supply (J20) | more cyclical wages (J31) |
| more cyclical wages (J31) | less countercyclical separations (J65) |
| high labor supply workers (J20) | less cyclical separations (J63) |
| lower labor supply (J22) | higher unemployment volatility (J64) |