Dissertation/Thesis Abstract

Lessons for the Aggregate Labor Market from Employment and Turnover Patterns Across Workers
by Mustre-del-Rio, Jose, Ph.D., University of Rochester, 2011, 119; 3478340
Abstract (Summary)

Economists often analyze economies populated by identical agents due to their tractability. However, this practice leads to discrepancies between individual and aggregate level observations. Most prominently, these models overlook large differences in behavior and outcomes across workers. This dissertation fills this gap by examining the implications of individual employment and turnover patterns for the aggregate labor market.

The first chapter of this dissertation analyzes turnover differences across workers over the business cycle and their implications for overall job duration. Evidence from the National Longitudinal Survey of The Youth (NLSY) 1979-2006 suggests that average (overall) job duration is pro-cyclical, once controlling for worker composition. At the exit margin, jobs ending in recessions are of systematically shorter duration than jobs ending in booms. This result however is driven by high turnover workers who disproportionately account for exits in a recession. At the entry margin, jobs starting in recessions are expected to be of shorter duration. This result is not compositional. Recessions tend to increase the likelihood of any new job ending even when accounting for worker heterogeneity.

The second chapter of this dissertation explores the implications of individual labor supply heterogeneity for the aggregate labor supply elasticity. It presents a heterogeneous agent economy with indivisible labor where agents differ in their disutility of labor and market skills. The model is estimated via indirect inference using observations on average employment and wage rates across individuals in the NLSY. The elasticity of aggregate employment in the model is 0.71, which is low compared to the literature. The results suggest that the previous literature generates large aggregate labor supply elasticities by ignoring individual labor supply differences.

The third chapter is a natural extension of the second. It addresses what are the resulting aggregate employment fluctuations in an economy where agents differ in their labor supply. The results of this chapter suggest that allowing for individual labor supply heterogeneity has profound cyclical effects. The model predicts that aggregate employment fluctuations are small because individuals with very inelastic labor supply contribute disproportionately to overall employment over the business cycle.

Indexing (document details)
Advisor: Bils, Mark J.
Commitee: Chang, Yongsung, Ellickson, Paul, Smith, Clifford
School: University of Rochester
Department: School of Arts and Sciences
School Location: United States -- New York
Source: DAI-A 73/02, Dissertation Abstracts International
Source Type: DISSERTATION
Subjects: Economics, Labor economics
Keywords: Business cycles, Duration analysis, Frisch elasticity, Indirect inference, Labor markets, Turnover
Publication Number: 3478340
ISBN: 9781124957821
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