- On the effects of Ranking by Unemployment Duration (joint with Edgar Preugschat) (submitted)
(This version: March, 2015)Empirical evidence shows that longer spells of unemployment are associated with lower job-finding rates, and also fewer interview opportunities. We develop a model of rational stigma that combines two explanations identified in the literature, namely dynamic sorting and ranking. We study a directed search economy with multilateral meetings, heterogeneous workers and incomplete information about a worker's type. Skilled workers are more productive and more likely to be suitable for any job. Firms observe a private signal, which perfectly identifies unsuitable matches. As longer spells signal lower expected productivity, firms rank applicants by unemployment duration in equilibrium. Exit rates from unemployment decline with duration because of both dynamic sorting and ranking. According to our calibration, ranking by duration accounts for approximately one fourth of the fall in exit rates. Furthermore, our model matches quite well the mild decline of re-employment wages along duration found in the data.
- Worker Turnover and Unemployment Insurance (joint with Sekyu Choi) (submitted)
Evidence shows that a large number of new matches are short-lived in the U.S. This paper studies an economy with incomplete markets in which present and future unemployment risks are intertwined and risk-averse workers factor these risks in their job-search decisions, while also deciding their search intensity. In equilibrium, firms respond to workers' preferences by creating more jobs that are easier to get, but typically shorter-lived than the jobs created in a centralized economy where the planner can attenuate the consumption loss of the unemployed by making a resource redistribution compatible with search incentives. Therefore, the equilibrium worker turnover is inefficiently high. In addition to a publicly-provided insurance to cover the unemployment risks, we show that the implementation of the planner's solution requires to subsidize match formation through wages and a zero layoff tax. According to our numerical experiments, worker turnover is too low in the U.S. economy because unemployment benefits are excessively high.
- Evidence on U.S. Worker Turnover (joint with Sekyu Choi) (submitted)
Using SIPP data for the U.S., we document that above 42% of newly employed workers fall into non-employment within a year. We also find that the transition rate from employment to non-employment within the first year shows an acyclical pattern and increases with the duration of the previous non-employment spell. Furthermore, starting wages are significantly higher for those workers who stay employed at the end of the first year.
Work in Progress
- Intermediation in the Housing Market
- Effects of Switching Occupations along the Job Search
- Unobserved Heterogeneity, Exit Rates and Re-employment Wages (joint with Pedro Gomes) (accepted at The Scandinavian Journal of Economics)
(This version: March, 2015)It is well known that exit rates from unemployment and re-employment wages decline over the unemployment spell after controlling for worker observable characteristics. Although unobserved heterogeneity has long been recognized as an important explanation for the decline of the exit rates, very little theoretical work has been done to model it. We study an economy in which workers are privately informed about their skills and can direct their search. We show that the unique equilibrium is separating, and skilled workers face more job opportunities and obtain higher wages. As the composition of the unemployment pool varies with unemployment duration, average exit rates and average wages fall with duration. The equilibrium result relies on two key ingredients: performance-pay schemes and the firms' ability to commit to renting an input complementary in production with worker skills.