Search and Mismatch

Abstract: I define occupations that are employed in more industries as “broader” occupations. I study the implications of occupation-level broadness for mismatch of unemployed and vacancies across occupations and industries. In the cross-section, workers in broader occupations are better insured against industry-level shocks and less at risk of being mismatched. Using geographical variation in occupation-level broadness, I show that during the Great Recession, unemployed workers from broader occupations had higher job-finding rates and smaller increases in unemployment than those previously employed in more specialized occupations. I contrast these cross-sectional results to the aggregate implications of mismatch. To that end, I build a model where the resulting mismatch of an industry-level shock depends on how specialized the affected occupations are. The model extends the Lucas (1974) island setting with frictional intra-island labor markets and frictional inter-island mobility. Workers in broader occupations are insured against industry-level productivity shocks because they can stay in their occupation but work in other unaffected industries. When individuals from broad occupations move to other industries, they propagate the shock to more workers. This strong general equilibrium mechanism offsets the direct effect. The results indicate that recessions which cause more mismatch lead to larger unemployment risk for workers in specialized occupations, but do not cause larger fluctuations of the aggregate unemployment rate.   I develop a model of the consumer good market where the individual’s search decision is consistent with balanced-growth preferences. Here, optimal search is independent of income but increases with the time endowment. I characterize the potentially multiple equilibria and test whether the model can replicate differences in observed shopping behavior across employed and unemployed individuals. Using the American Time Use Survey, I show that unemployed individuals have an almost 50 % larger time endowment available for leisure and shopping. Meanwhile, they only spend 18 % more time shopping than the employed. In the calibrated model, however, unemployed households will spend around twice as much time shopping as employed households. I argue that consumer-goods search models are not yet ready for business cycle analysis, and discuss ways of reconciling the model with the data.   We study the impact of worker protection in an environment with heterogeneous match productivity and a constrained wage setting. Firms can either employ costly screening to determine the match quality, or hire workers out of their applicant pool at random, learn about the match quality, and disengage from bad matches. Thus, layoff protections intervene with a firm’s ability to screen matches. In our calibration, a policy that prevents layoffs reduces unemployment and increases consumption in the new steady state. However, the economy becomes more susceptible to productivity shocks. Two additional channels transmit productivity shocks when layoffs are regulated. First, the value of hiring at random is more volatile when separating bad matches is no longer an option. Second, additional screening in recessions worsens the composition of the unemployed pool. Consequently, recessions will be long lasting and hiring is lower even after the TFP shock has receded. We conclude that economies potentially have a higher average output under layoff regulations, but that this comes at the cost of higher volatility and jobless recoveries.