Unequal Job Security, Unemployment Scarring, and the Distribution of Welfare in a Search and Bargaining Model
23 Pages Posted:
Date Written: January 24, 2025
Abstract
Standard job search models cannot generate the stylized facts that lower wage jobs are less stable and the best predictor of a future unemployment spell is a previous one. I develop a search model with endogenous job termination that can produce these patterns. I estimate that job destruction is about twice as likely in the first quintile of wages as the fifth, and twice as likely for workers with a recent unemployment spell. Accounting for this produces 14.7% higher inequality in time spent in unemployment and 8.3% greater dispersion in welfare. Counterfactual experiments show how unemployment insurance reduces unemployment scarring.
Keywords: job stability, unemployment scarring, job search, inequality, labor share
JEL Classification: J3, J6, D6
Suggested Citation: Suggested Citation