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A Theory of Labor Markets with Inefficient Turnover

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  • Blanco, Andres
  • Drenik, Andres
  • Moser, Christian
  • Zaratiegui, Emilio

Abstract

We develop a theory of labor markets with four features: search frictions, worker productivity shocks, wage rigidity, and two-sided lack of commitment. Inefficient job separations occur in the form of endogenous quits and layoffs that are unilaterally initiated whenever a worker’s wage-to-productivity ratio moves outside an inaction region. We derive sufficient statistics for the labor market response to aggregate shocks based on the distribution of workers’ wage-to-productivity ratios. These statistics crucially depend on the incidence of inefficient job separations, which we show how to identify using readily available microdata on wage changes and worker flows between jobs.

Suggested Citation

  • Blanco, Andres & Drenik, Andres & Moser, Christian & Zaratiegui, Emilio, 2023. "A Theory of Labor Markets with Inefficient Turnover," CEPR Discussion Papers 17808, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17808
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    More about this item

    Keywords

    Wage rigidity; Directed search; Limited commitment; Job Separations; Inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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