What Drives Labor Market Flows?

Résumé

I study an equilibrium model of the labor market with firm- and worker-level shocks and evaluate their relative contribution to the labor market flows. Firms hire and shed workers in response to firm-specific productivity shocks. Workers and firms learn about the quality of their employment match and separate when they realize they are mismatched. Crucially, match quality and productivity shocks must interact in order to explain the hazard rates of separation in the cross section of firm growth rates and workers’ tenures – a property I call technology adoption shocks. The model, calibrated to a large panel dataset of individual labor market histories in Austria, predicts that only 21%–30% of the separations are driven by firm-level shocks. This suggests that worker-level heterogeneity is crucial for explaining the magnitudes of worker mobility. Distinguishing different driving forces of the labor flows is important for evaluating effects of labor market policies.