The Alpha Beta Gamma of the Labor Market

53 Pages Posted: 14 May 2021

See all articles by Victoria Gregory

Victoria Gregory

New York University (NYU) - New York University

Guido Menzio

New York University (NYU)

David Wiczer

State University of New York (SUNY), Stony Brook

Multiple version iconThere are 2 versions of this paper

Date Written: April, 2021

Abstract

Using a large panel dataset of US workers, we calibrate a search-theoretic model of the labor market, where workers are heterogeneous with respect to the parameters governing their employment transitions. We first approximate heterogeneity with a discrete number of latent types, and then calibrate type-specific parameters by matching type-specific moments. Heterogeneity is well approximated by 3 types: αs, βs and γs. Workers of type α find employment quickly because they have large gains from trade, and stick to their jobs because their productivity is similar across jobs. Workers of type γ find employment slowly because they have small gains from trade, and are unlikely to stick to their job because they keep searching for jobs in the right tail of the productivity distribution. During the Great Recession, the magnitude and persistence of aggregate unemployment is caused by γs, who are vulnerable to shocks and, once displaced, they cycle through multiple unemployment spells before finding stable employment.

Keywords: Search frictions, Unemployment, Business Cycles

JEL Classification: E24, O40, R11

Suggested Citation

Gregory, Victoria and Menzio, Guido and Wiczer, David, The Alpha Beta Gamma of the Labor Market (April, 2021). FRB St. Louis Working Paper No. 2021-3, Available at SSRN: https://ssrn.com/abstract=3843872 or http://dx.doi.org/10.20955/wp.2021.003

Victoria Gregory (Contact Author)

New York University (NYU) - New York University

Guido Menzio

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
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New York, NY 10003-711
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David Wiczer

State University of New York (SUNY), Stony Brook

Health Science Center
Stony Brook, NY 11794
United States

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