On site & Online - Equilibrium Job Turnover and the Business Cycle

Abstract

This paper develops and estimates an elegant equilibrium business cycle model. The framework is consistent both with micro-evidence regarding the distribution of growth rates across firms and macro-evidence on gross job creation and job destruction flows over the cycle. By also incorporating on-the-job search, we systematically characterise the stochastic relationship between aggregate job creation and job destruction flows across firms, gross hire and quit flows by workers across firms, while being consistent with the evolving distributions of employment across firms and unemployment over the business cycle. The approach is particularly useful because it generates endogenous job ladder dynamics where, consistent with the micro-evidence, job-to-job quits are typically to higher wage paying firms but not necessarily to larger firms. Such quit rates are strongly procyclical and so following a recession, workers employed in low wage jobs are less likely to transit to more productive employment. Hence we characterise how the job ladder evolves endogenously over the cycle, and how job creation, job destruction, and the job ladder contribute to unemployment dynamics.