Worker heterogeneity in productivity and labor supply is introduced into a matching model. Workers who earn high wages and work high-hours are identified as those with strong market comparative advantage-high rents from being employed. The model is calibrated to match separation, job finding, and employment in the SIPP data. The model predicts a big drop in employment for workers with weak comparative advantage during recessions. But the data show that workers with strong comparative advantage also display sizable employment fluctuations, implying that aggregate employment fluctuations are not explained by the responses of workers with small rents to employment.
Bibliographical noteFunding Information:
We thank Evgenia Dechter for her excellent research assistance. We particularly thank Mark Aguiar, Iourii Manovskii, Valerie Ramey and Richard Rogerson for their helpful suggestions. Chang gratefully acknowledges support from the WCU ( R33-10005 ) Program through the Korea Research Foundation.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics