Discussion Paper Details

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Title: Unemployment and Endogenous Reallocation over the Business Cycle

Author(s): Carlos Carrillo-Tudela and Ludo Visschers

Publication Date: May 2020

Keyword(s): Business cycle, Occupational Mobility, Rest, search and unemployment

Programme Area(s): Labour Economics

Abstract: This paper studies the extent to which the cyclicality of gross and net occupational mobility shapes that of aggregate unemployment and its duration distribution. Using the SIPP, we document the relation between workers' (gross and net) occupational mobility and unemployment duration over the long run and business cycle. To interpret this evidence, we develop an analytically and computationally tractable stochastic equilibrium model with heterogenous agents and occupations as well as aggregate uncertainty. The model is quantitatively consistent with several important features of the US labor market: procyclical gross and countercyclical net occupational mobility, the large volatility of unemployment and the cyclical properties of the unemployment duration distribution, among others. Our analysis shows that "excess" occupational mobility due to workers' changing career prospects interacts with aggregate conditions to drive fluctuations of aggregate unemployment and its duration distribution.

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Bibliographic Reference

Carrillo-Tudela, C and Visschers, L. 2020. 'Unemployment and Endogenous Reallocation over the Business Cycle'. London, Centre for Economic Policy Research.