DP16370 Returns to Labor Mobility: Layoff Costs and Quit Turbulence

Author(s): Isaac Baley, Lars Ljungqvist, Thomas J Sargent
Publication Date: July 2021
Keyword(s): Human Capital, Labor Mobility, layoff cost, matching model, quits, search-island model, skills, turbulence, Turnover, unemployment
JEL(s): E24, J63, J64
Programme Areas: Labour Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16370

Although they are studied too rarely, returns to labor mobility transmit important forces that decisively shape outcomes in macro-labor models. By focusing on returns to labor mobility, this paper sheds new light on calibrations of influential macro-labor studies and resolves an issue about the turbulence-theoretic explanation of trans-Atlantic unemployment experiences. It does so by invoking a cross-phenomenon restriction -- in our case, how returns to labor mobility determine effects on unemployment of changes in layoff costs, on the one hand, and changes in quit turbulence, on the other hand. We also spotlight two distinct perspectives and associated sources of data: one from labor economics and another from the economics of industrial organization. Ultimately, we are reminded of the rule that new theories "must not throw out all the successes of former theories. ... to preserve the successes of the past is not only a constraint, but also a guide."