On the Dynamics of Unemployment and Wage Distributions

Postel-Vinay and Robin's (2002) sequential auction model is extended to allow for aggregate productivity shocks. Workers exhibit permanent differences in ability while firms are identical. Negative aggregate productivity shocks induce job destruction by driving the surplus of matches with low a...

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Bibliographic Details
Published in:	Econometrica Vol. 79; no. 5; pp. 1327 - 1355
Main Author:	Robin, Jean-Marc
Format:	Journal Article
Language:	English
Published:	Oxford, UK Blackwell Publishing Ltd 01-09-2011 Econometric Society Wiley-Blackwell
Subjects:	Applications Distribution Distribution theory Economic models Economic shock Economics and Finance Employment Exact sciences and technology Humanities and Social Sciences Income inequality inequality Insurance, economics, finance Job hunting Job loss Labor economics Labor surplus Labour market structure Macroeconomics Mathematical analysis Mathematics Partial differential equations Probability and statistics Probability theory and stochastic processes Productivity Sciences and techniques of general use search-matching Statistics Studies Surplus Unemployment Unemployment dynamics Unemployment rates Wage areas Wage differential wage distribution Wage levels Wages Wages & salaries Productivity Wage Auction search-match Economic sciences Unemployment Statistical method wage distribution Heterogeneity inequality Business model Unemployment dynamics Sequential method Distribution function Econometrics search-matching
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Summary:	Postel-Vinay and Robin's (2002) sequential auction model is extended to allow for aggregate productivity shocks. Workers exhibit permanent differences in ability while firms are identical. Negative aggregate productivity shocks induce job destruction by driving the surplus of matches with low ability workers to negative values. Endogenous job destruction coupled with worker heterogeneity thus provides a mechanism for amplifying productivity shocks that offers an original solution to the unemployment volatility puzzle (Shimer (2005)). Moreover, positive or negative shocks may lead employers and employees to renegotiate low wages up and high wages down when agents' individual surpluses become negative. The model delivers rich business cycle dynamics of wage distributions and explains why both low wages and high wages are more procyclical than wages in the middle of the distribution.
Bibliography:	istex:289BAE35E9552A54D457EE36BE24476B98F0ACB3 ark:/67375/WNG-LJ7W1K7K-K ArticleID:ECTA1149 This article is based on my Walras–Bowley Lecture, presented at the North American Summer Meetings of the Econometric Society, Boston University, June 2009. Helpful comments were received from participants in seminars at IFS, Stockholm University, Sciences Po, CREST‐INSEE, Cambridge University, the Paris School of Economics, and conferences at the Milton Friedman Institute (University of Chicago), Jerusalem (Bank of Israel), and Venice (CSEifo). I am particularly grateful to Rob Shimer, Iouri Manovskii, Jean‐Olivier Hairault, Thomas Piketty, Pierre Cahuc, Francis Kramarz, Guy Laroque, Boyan Jovanovic, Tom Sargent, and Fabien Postel‐Vinay whose questions and comments have definitely influenced this paper. ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23
ISSN:	0012-9682 1468-0262
DOI:	10.3982/ECTA9070