Comparative Advantage in Cyclical Unemployment

55 Pages Posted: 9 Jul 2007 Last revised: 28 Aug 2010

See all articles by Mark Bils

Mark Bils

University of Rochester - Department of Economics; National Bureau of Economic Research (NBER)

Yongsung Chang

University of Rochester - Department of Economics; Yonsei University - Department of Economics

Sun-Bin Kim

Concordia University, Quebec - Department of Economics

Date Written: July 2007

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.

Suggested Citation

Bils, Mark and Chang, Yongsung and Kim, Sun-Bin, Comparative Advantage in Cyclical Unemployment (July 2007). NBER Working Paper No. w13231. Available at SSRN: https://ssrn.com/abstract=999026

Mark Bils (Contact Author)

University of Rochester - Department of Economics ( email )

Harkness Hall
Rochester, NY 14627-0158
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yongsung Chang

University of Rochester - Department of Economics ( email )

Harkness Hall
Rochester, NY 14627
United States

Yonsei University - Department of Economics ( email )

50 Yonsei-Ro
Seoul, 120-749
Korea

Sun-Bin Kim

Concordia University, Quebec - Department of Economics ( email )

1455 de Maisonneuve Blvd., W.
Montreal, Quebec H3G 1MB
Canada
514-848-3923 (Phone)

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