Separations, Sorting and Cyclical Unemployment

47 Pages Posted: 6 Oct 2012

See all articles by Andreas I. Mueller

Andreas I. Mueller

University of Texas at Austin - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Date Written: October 6, 2012

Abstract

This paper establishes a new fact about the compositional changes in the pool of unemployed over the U.S. business cycle and evaluates a number of theories that can potentially explain it. Using micro-data from the Current Population Survey for the years 1962-2011, it documents that in recessions the pool of unemployed shifts towards workers with high wages in their previous job. Moreover, it shows that these changes in the composition of the unemployed are mainly due to the higher cyclicality of separations for high-wage workers, and not driven by differences in the cyclicality of job-finding rates. A search-matching model with endogenous separations and worker heterogeneity in terms of ability has difficulty in explaining these patterns, but an extension of the model with credit-constraint shocks does much better in accounting for the new facts.

Keywords: sorting, unemployment, business cycles, search-matching, vacancies

JEL Classification: E24, E32, J63

Suggested Citation

Mueller, Andreas I., Separations, Sorting and Cyclical Unemployment (October 6, 2012). IZA Discussion Paper No. 6849, Available at SSRN: https://ssrn.com/abstract=2157991

Andreas I. Mueller (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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