a life-cycle model of trans-atlantic employment experiences...olg search-island model with...
TRANSCRIPT
![Page 1: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/1.jpg)
A Life-Cycle Model of Trans-Atlantic Employment Experiences
Lars Ljungqvist Stockholm School of Economics and New York University
Thomas J. Sargent New York University and Hoover Institution
Sagiri Kitao Keio University
![Page 2: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/2.jpg)
1970 2004
Source: OECD via Shimer
Source: OECD Employment Outlook 2003
![Page 3: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/3.jpg)
Extension of turbulence theory by
Ljungqvist and Sargent (1998) unemployment benefits – ″ – (2008) layoff costs
Kitao, Ljungqvist and Sargent (present) minimum wage
Inspiration from
Heckman, Lochner and Taber (1998) Ben-Porath human capital technology Mortensen and Pissarides (1994) firm productivity shocks drawn from uniform distribution with quarterly arrival rate 0.081 and std. 0.0375 Neil (1999) ”The complexity of job mobility among young men”
Young workers draw productivities from offer distribution in LS (2008) N(0.7, 0.02) truncated to interval [0,1], and become experienced with prob. 0.33
Heathcote, Storesletten, Violante (2010) All workers subject to transitory earnings shock with variance 0.04
0.0696 0.0534
normal bi-monthly Empirical motivation from Gottschalk and Moffitt (1995) Now we discover Moffitt and Gottschalk (1995) age-dependent increases in autocovariances of income shocks
![Page 4: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/4.jpg)
Extension of turbulence theory by
Ljungqvist and Sargent (1998) unemployment benefits – ″ – (2008) layoff costs
Empirical motivation from Gottschalk and Moffitt (1995) Now we discover Moffitt and Gottschalk (1995) age-dependent increases in autocovariances of income shocks
Inspiration from
Heckman, Lochner and Taber (1998) Ben-Porath human capital technology Mortensen and Pissarides (1994) firm productivity shocks drawn from uniform distribution with quarterly arrival rate 0.081 and std. 0.0375 Neil (1999) ”The complexity of job mobility among young men”
Young workers draw productivities from offer distribution in LS (2008) N(0.7, 0.02) truncated to interval [0,1], and become experienced with prob. 0.33
Heathcote, Storesletten, Violante (2010) All workers subject to transitory earnings shock with variance 0.04
0.0696 0.0534
normal bi-monthly
Kitao, Ljungqvist and Sargent (present) minimum wage
![Page 5: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/5.jpg)
Extension of turbulence theory by
Ljungqvist and Sargent (1998) unemployment benefits – ″ – (2008) layoff costs
Kitao, Ljungqvist and Sargent (present) minimum wage
Inspiration from
Heckman, Lochner and Taber (1998) Ben-Porath human capital technology Mortensen and Pissarides (1994) firm productivity shocks drawn from uniform distribution with quarterly arrival rate 0.081 and std. 0.0375 Neal (1999) ”The complexity of job mobility among young men”
Young workers draw productivities from offer distribution in LS (2008) N(0.7, 0.02) truncated to interval [0,1], and become experienced with prob. 0.33
Heathcote, Storesletten, Violante (2010) All workers subject to transitory earnings shock with variance 0.04
0.0696 0.0534
normal bi-monthly Empirical motivation from Gottschalk and Moffitt (1995) Now we discover Moffitt and Gottschalk (1995) age-dependent increases in autocovariances of income shocks
![Page 6: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/6.jpg)
Extension of turbulence theory by
Ljungqvist and Sargent (1998) unemployment benefits – ″ – (2008) layoff costs
Kitao, Ljungqvist and Sargent (present) minimum wage
Inspiration from
Heckman, Lochner and Taber (1998) Ben-Porath human capital technology Mortensen and Pissarides (1994) firm productivity shocks drawn from uniform distribution with quarterly arrival rate 0.081 and std. 0.0375 Neal (1999) ”The complexity of job mobility among young men”
Young workers draw productivities from offer distribution in LS (2008) N(0.7, 0.02) truncated to interval [0,1], and become experienced with prob. 0.33
Heathcote, Storesletten, Violante (2010) All workers subject to transitory earnings shock with variance 0.04
0.0696 0.0534
normal bi-monthly Empirical motivation from Gottschalk and Moffitt (1995) Now we discover Moffitt and Gottschalk (1995) age-dependent increases in autocovariances of income shocks
![Page 7: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/7.jpg)
Extension of turbulence theory by
Ljungqvist and Sargent (1998) unemployment benefits – ″ – (2008) layoff costs
Kitao, Ljungqvist and Sargent (present) minimum wage
Inspiration from
Heckman, Lochner and Taber (1998) Ben-Porath human capital technology Mortensen and Pissarides (1994) firm productivity shocks drawn from uniform distribution with quarterly arrival rate 0.081 and std. 0.0375 Neal (1999) ”The complexity of job mobility among young men”
Young workers draw productivities from offer distribution in LS (2008) N(0.7, 0.02) truncated to interval [0,1], and become experienced with prob. 0.33
Heathcote, Storesletten, Violante (2010) All workers subject to transitory earnings shock with variance 0.04
Empirical motivation from Gottschalk and Moffitt (1995) Now we discover Moffitt and Gottschalk (1995) age-dependent increases in autocovariances of income shocks
![Page 8: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/8.jpg)
Extension of turbulence theory by
Ljungqvist and Sargent (1998) unemployment benefits – ″ – (2008) layoff costs
Kitao, Ljungqvist and Sargent (present) minimum wage
Inspiration from
Heckman, Lochner and Taber (1998) Ben-Porath human capital technology Mortensen and Pissarides (1994) firm productivity shocks drawn from uniform distribution with quarterly arrival rate 0.081 and std. 0.0375 Neal (1999) ”The complexity of job mobility among young men”
Young workers draw productivities from offer distribution in LS (2008) N(0.7, 0.02) truncated to interval [0,1], and become experienced with prob. 0.33
Heathcote, Storesletten, Violante (2010) All workers subject to transitory earnings shock with variance 0.04
0.0696 0.0534
normal bi-monthly Empirical motivation from Gottschalk and Moffitt (1995) Now we discover Moffitt and Gottschalk (1995) age-dependent increases in autocovariances of income shocks
![Page 9: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/9.jpg)
Extension of turbulence theory by
Ljungqvist and Sargent (1998) unemployment benefits – ″ – (2008) layoff costs
Kitao, Ljungqvist and Sargent (present) minimum wage
Inspiration from
Heckman, Lochner and Taber (1998) Ben-Porath human capital technology Mortensen and Pissarides (1994) firm productivity shocks drawn from uniform distribution with quarterly arrival rate 0.081 and std. 0.0375 Neal (1999) ”The complexity of job mobility among young men”
Young workers draw productivities from offer distribution in LS (2008) N(0.7, 0.02) truncated to interval [0,1], and become experienced with prob. 0.33
Heathcote, Storesletten, Violante (2010) All workers subject to transitory earnings shock with variance 0.04
0.0696 0.0534
normal bi-monthly Empirical motivation from Gottschalk and Moffitt (1995) Now we discover Moffitt and Gottschalk (1995) age-dependent increases in autocovariances of income shocks
![Page 10: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/10.jpg)
Extension of turbulence theory by
Ljungqvist and Sargent (1998) unemployment benefits – ″ – (2008) layoff costs
Kitao, Ljungqvist and Sargent (present) minimum wage
Inspiration from
Heckman, Lochner and Taber (1998) Ben-Porath human capital technology Mortensen and Pissarides (1994) firm productivity shocks drawn from uniform distribution with quarterly arrival rate 0.081 and std. 0.0375 Neal (1999) ”The complexity of job mobility among young men”
Young workers draw productivities from offer distribution in LS (2008) N(0.7, 0.02) truncated to interval [0,1], and become experienced with prob. 0.33
Heathcote, Storesletten, Violante (2010) All workers subject to transitory earnings shock with variance 0.04
0.0696 0.0534
normal bi-monthly Empirical motivation from Gottschalk and Moffitt (1995) Now we discover Moffitt and Gottschalk (1995) age-dependent increases in autocovariances of income shocks
![Page 11: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/11.jpg)
Extension of turbulence theory by
Ljungqvist and Sargent (1998) unemployment benefits – ″ – (2008) layoff costs
Kitao, Ljungqvist and Sargent (present) minimum wage
Inspiration from
Heckman, Lochner and Taber (1998) Ben-Porath human capital technology Mortensen and Pissarides (1994) firm productivity shocks drawn from uniform distribution with quarterly arrival rate 0.081 and std. 0.0375 Neal (1999) ”The complexity of job mobility among young men”
Young workers draw productivities from offer distribution in LS (2008) N(0.7, 0.02) truncated to interval [0,1], and become experienced with prob. 0.33
Heathcote, Storesletten, Violante (2010) All workers subject to transitory earnings shock with variance 0.04
0.0696 0.0534
normal bi-monthly Empirical motivation from Gottschalk and Moffitt (1995) Now we discover Moffitt and Gottschalk (1995) age-dependent increases in autocovariances of income shocks
![Page 12: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/12.jpg)
Extension of turbulence theory by
Ljungqvist and Sargent (1998) unemployment benefits – ″ – (2008) layoff costs
Kitao, Ljungqvist and Sargent (present) minimum wage
Inspiration from
Heckman, Lochner and Taber (1998) Ben-Porath human capital technology Mortensen and Pissarides (1994) firm productivity shocks drawn from uniform distribution with quarterly arrival rate 0.081 and std. 0.0375 Neal (1999) ”The complexity of job mobility among young men”
Young workers draw productivities from offer distribution in LS (2008) N(0.7, 0.02) truncated to interval [0,1], and become experienced with prob. 0.33
Heathcote, Storesletten, Violante (2010) All workers subject to transitory earnings shock with variance 0.04
0.0696 0.0534
normal bi-monthly Empirical motivation from Gottschalk and Moffitt (1995) Now we discover Moffitt and Gottschalk (1995) age-dependent increases in autocovariances of income shocks
![Page 13: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/13.jpg)
1970 2004
Source: OECD via Shimer
Source: OECD Employment Outlook 2003
![Page 14: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/14.jpg)
1970 2004
Source: OECD via Shimer
Tranquil times
Turbulent times
![Page 15: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/15.jpg)
OLG search-island model with indivisible labor
Ex ante heterogeneity: 2 types (L and H) distinguished by parameters of
Ex post heterogeneity: time to become experienced job search luck job destruction luck i.i.d. earnings shocks human capital investments … and depreciation at job destructions (‘turbulence’) financial savings
Government labor and capital taxes layoff tax UI benefits social security (minimum wage)
Mandatory retirement
McCall productivity distribution in a phase of ‘inexperience’ (high job destruction probability)
Ben-Porath human capital technology in a phase of ‘experience’ (lower job destruction probability)
Ways to smooth consumption: trade a risk-free asset invest in human capital career planning social safety net (UI) social security
![Page 16: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/16.jpg)
OLG search-island model with indivisible labor
Ex ante heterogeneity: 2 types (L and H) distinguished by parameters of
Ex post heterogeneity: time to become experienced job search luck job destruction luck i.i.d. earnings shocks human capital investments … and depreciation at job destructions (‘turbulence’) financial savings
Government labor and capital taxes layoff tax UI benefits social security (minimum wage)
Mandatory retirement
McCall productivity distribution in a phase of ‘inexperience’ (high job destruction probability)
Ben-Porath human capital technology in a phase of ‘experience’ (lower job destruction probability)
Ways to smooth consumption: trade a risk-free asset invest in human capital career planning social safety net (UI) social security
![Page 17: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/17.jpg)
OLG search-island model with indivisible labor
Ex ante heterogeneity: 2 types (L and H) distinguished by parameters of
Ex post heterogeneity: time to become experienced job search luck job destruction luck i.i.d. earnings shocks human capital investments … and depreciation at job destructions (‘turbulence’) financial savings
Government labor and capital taxes layoff tax UI benefits social security (minimum wage)
Mandatory retirement
McCall productivity distribution in a phase of ‘inexperience’ (high job destruction probability)
Ben-Porath human capital technology in a phase of ‘experience’ (lower job destruction probability)
Ways to smooth consumption: trade a risk-free asset invest in human capital career planning social safety net (UI) social security
![Page 18: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/18.jpg)
OLG search-island model with indivisible labor
Ex ante heterogeneity: 2 types (L and H) distinguished by parameters of
Ex post heterogeneity: time to become experienced job search luck job destruction luck i.i.d. earnings shocks human capital investments … and depreciation at job destructions (‘turbulence’) financial savings
Government labor and capital taxes layoff tax UI benefits social security (minimum wage)
Mandatory retirement
McCall productivity distribution in a phase of ‘inexperience’ (high job destruction probability)
Ben-Porath human capital technology in a phase of ‘experience’ (lower job destruction probability)
Ways to smooth consumption: trade a risk-free asset invest in human capital career planning social safety net (UI) social security
![Page 19: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/19.jpg)
Agents 2 types; i = L, H [ low type (high school) , high type (college) ]
Preferences
Career path working age 20-65, mandatory retirement 66-90 { survival prob. mt } (1) ‘Inexperienced’: for each employment spell, efficiency units are drawn from transition probability π (2) ‘Experienced’: efficiency units , { human capital , investment } Ben-Porath technology (no depreciation) convert into bimonthly transition probabilities
Turbulence transition probability at an exogenous job termination
employed (indivisible labor) unemployed (search intensity ) inactive (incl. retirement)
![Page 20: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/20.jpg)
Agents 2 types; i = L, H [ low type (high school) , high type (college) ]
Preferences
Career path working age 20-65, mandatory retirement 66-90 { survival prob. mt } (1) ‘Inexperienced’: for each employment spell, efficiency units are drawn from transition probability π (2) ‘Experienced’: efficiency units , { human capital , investment } Ben-Porath technology (no depreciation) convert into bimonthly transition probabilities
Turbulence transition probability at an exogenous job termination
employed (indivisible labor) unemployed (search intensity ) inactive (incl. retirement)
![Page 21: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/21.jpg)
Agents 2 types; i = L, H [ low type (high school) , high type (college) ]
Preferences
Career path working age 20-65, mandatory retirement 66-90 { survival prob. mt } (1) ‘Inexperienced’: for each employment spell, efficiency units are drawn from transition probability π (2) ‘Experienced’: efficiency units , { human capital , investment } Ben-Porath technology (no depreciation) convert into bimonthly transition probabilities
Turbulence transition probability at an exogenous job termination
employed (indivisible labor) unemployed (search intensity ) inactive (incl. retirement)
![Page 22: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/22.jpg)
Agents 2 types; i = L, H [ low type (high school) , high type (college) ]
Preferences
Career path working age 20-65, mandatory retirement 66-90 { survival prob. mt } (1) ‘Inexperienced’: for each employment spell, efficiency units are drawn from transition probability π (2) ‘Experienced’: efficiency units , { human capital , investment } Ben-Porath technology (no depreciation) convert into bimonthly transition probabilities
Turbulence transition probability at an exogenous job termination
employed (indivisible labor) unemployed (search intensity ) inactive (incl. retirement)
![Page 23: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/23.jpg)
Firms each firm creates a single job
Production function job-specific productivity level Markov transition kernel
physical capital (depreciation rate )
cost of creating a new job (with productivity level )
Search-island model (Alvarez and Veracierto, 2001)
disutility of search
prob. of finding labor market next period
• workers and firms are randomly matched each period
• after observing worker, firm hires profit-maximizing capital
• anonymous labor market with a market-clearing wage rate per efficiency unit of labor
Endogenous and
exogenous separations:
q prob. firm destroys job endogenously
λ exogenous destruction
λ – λ additional exog. breakups for inexperienced
~
![Page 24: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/24.jpg)
Firms each firm creates a single job
Production function job-specific productivity level Markov transition kernel
physical capital (depreciation rate )
cost of creating a new job (with productivity level )
Search-island model (Alvarez and Veracierto, 2001)
disutility of search
prob. of finding labor market next period
• workers and firms are randomly matched each period
• after observing worker, firm hires profit-maximizing capital
• anonymous labor market with a market-clearing wage rate per efficiency unit of labor
Endogenous and
exogenous separations:
q prob. firm destroys job endogenously
λ exogenous destruction
λ – λ additional exog. breakups for inexperienced
~
![Page 25: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/25.jpg)
Firms each firm creates a single job
Production function job-specific productivity level Markov transition kernel
physical capital (depreciation rate )
cost of creating a new job (with productivity level )
Search-island model (Alvarez and Veracierto, 2001)
disutility of search
prob. of finding labor market next period
• workers and firms are randomly matched each period
• after observing worker, firm hires profit-maximizing capital
• anonymous labor market with a market-clearing wage rate per efficiency unit of labor
Endogenous and
exogenous separations:
q prob. firm destroys job endogenously
λ exogenous destruction
λ – λ additional exog. breakups for inexperienced
~
![Page 26: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/26.jpg)
Value functions
![Page 27: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/27.jpg)
Parameters set outside the model (a) government policies (public expenditures clear the government b.c.) (b) aggregate production technology (c) real interest rate, 4% (do not model top 5% of the population)
Parameters estimated/calibrated within the model to U.S. data
(1) Subjective discount factor
(2) Ben-Porath technology
(3) Search technology
(4) Idiosyncratic firm productivity
(5) Disutility of work
Fraction of wealth held by 95% of population
Earnings profiles (college and non-college)
Average unemployment duration
Average number of jobs held over a lifetime and ‘equilibrium response’ to layoff taxes Cross-time and cross-continent unemployment and permanent earnings volatility
Check auxiliary implications of the analysis (i) life-cycle profiles of asset holdings and consumption (ii) unemployment duration and long-term unemployment by age group (iii) autocorrelations of individual earnings at different lag orders and by age group
![Page 28: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/28.jpg)
Parameters set outside the model (a) government policies (public expenditures clear the government b.c.) (b) aggregate production technology (c) real interest rate, 4% (do not model top 5% of the population)
Parameters estimated/calibrated within the model to U.S. data
(1) Subjective discount factor
(2) Ben-Porath technology
(3) Search technology
(4) Idiosyncratic firm productivity
(5) Disutility of work
Fraction of wealth held by 95% of population
Earnings profiles (college and non-college)
Average unemployment duration
Average number of jobs held over a lifetime and ‘equilibrium response’ to layoff taxes Cross-time and cross-continent unemployment and permanent earnings volatility
Check auxiliary implications of the analysis (i) life-cycle profiles of asset holdings and consumption (ii) unemployment duration and long-term unemployment by age group (iii) autocorrelations of individual earnings at different lag orders and by age group
![Page 29: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/29.jpg)
Parameters set outside the model (a) government policies (public expenditures clear the government b.c.) (b) aggregate production technology (c) real interest rate, 4% (do not model top 5% of the population)
Parameters estimated/calibrated within the model to U.S. data
(1) Subjective discount factor
(2) Ben-Porath technology
(3) Search technology
(4) Idiosyncratic firm productivity
(5) Disutility of work
Fraction of wealth held by 95% of population
Earnings profiles (college and non-college)
Average unemployment duration
Average number of jobs held over a lifetime and ‘equilibrium response’ to layoff taxes Cross-time and cross-continent unemployment and permanent earnings volatility
Check auxiliary implications (i) life-cycle profiles of asset holdings and consumption (ii) unemployment duration and long-term unemployment by age group (iii) autocorrelations of individual earnings at different lag orders and by age group
![Page 30: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/30.jpg)
Government
OECD Economic Studies (1996): Net unemployment benefit replacement rates in 1994 for single-earner households, in percent U.S. France Germany first year 34 (38) 79 (80) 66 (74) second and third year 9 (14) 63 (62) 63 (72) fourth and fifth year 9 (14) 61 (60) 63 (72) without (with) dependent spouse
U.S. Europe
60 % replacement rate 6 months unlimited duration
0 3 months of low-type earnings
no yes, in turbulent times
15% 30% 10% 10%
15% 15%
Replacement rate low type 47% 47% high type 25% 25%
![Page 31: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/31.jpg)
Government
OECD Economic Studies (1996): Net unemployment benefit replacement rates in 1994 for single-earner households, in percent U.S. France Germany first year 34 (38) 79 (80) 66 (74) second and third year 9 (14) 63 (62) 63 (72) fourth and fifth year 9 (14) 61 (60) 63 (72) without (with) dependent spouse
U.S. Europe
60 % replacement rate 6 months unlimited duration
0 3 months of low-type earnings
no yes, in turbulent times
15% 30% 10% 10%
15% 15%
Replacement rate low type 47% 47% high type 25% 25%
![Page 32: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/32.jpg)
Government
60 % replacement rate 6 months unlimited duration
0 3 months of low-type earnings
no yes, in turbulent times
15% 30% 10% 10%
15% 15%
Replacement rate low type 47% 47% high type 25% 25%
Hunt (J. of Labor Economics, 1995):
German unemployment benefits in 1983 First 12 months ‘Arbeitslosengeld’ 68% replacement rate Thereafter, ‘Arbeitslosenhilfe’ 58% replacement rate unlimited duration, means tested
U.S. Europe
![Page 33: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/33.jpg)
Government
60 % replacement rate 6 months unlimited duration
0 3 months of low-type earnings
no yes, in turbulent times
15% 30% 10% 10%
15% 15%
Replacement rate low type 47% 47% high type 25% 25%
U.S. Europe
![Page 34: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/34.jpg)
Government
60 % replacement rate 6 months unlimited duration
0 3 months of low-type earnings
no yes, in turbulent times
15% 30% 10% 10%
15% 15%
Replacement rate low type 47% 47% high type 25% 25%
Mendoza et al. (JME, 1994) and http://www.econ.umd.edu/~mendoza/pp/newtaxdata.pdf Tax on labor income U.S. 28% France 46% Germany 41%
U.S. Europe
![Page 35: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/35.jpg)
Government
60 % replacement rate 6 months unlimited duration
0 3 months of low-type earnings
no yes, in turbulent times
15% 30% 10% 10%
15% 15%
Based on replacement rate of average earnings 40% 50%
U.S. Europe
RESIDUALLY DETERMINED
OECD study (2006): Gross replacement rate U.S. France Germany of average earnings 38.6% 52.9% 45.8%
![Page 36: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/36.jpg)
Government
60 % replacement rate 6 months unlimited duration
0 3 months of low-type earnings
no yes, in turbulent times
15% 30% 10% 10%
15% 15%
Based on replacement rate of average earnings 40% 50%
U.S. Europe
RESIDUALLY DETERMINED
OECD study (2006): Gross replacement rate U.S. France Germany of average earnings 38.6% 52.9% 45.8%
Residual
![Page 37: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/37.jpg)
Ben-Porath technology
Earnings profile (in $10,000 dollars)
Solid line – model Dashed line – data
Target: U.S. Census 2006 non-college and college graduates Model: Experienced workers with type-specific Inexperienced workers normal dist. on
![Page 38: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/38.jpg)
Subjective discount factor
Fraction of wealth held by 95% of population
β
![Page 39: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/39.jpg)
Subjective discount factor
Fraction of wealth held by 95% of population
β 0.981
![Page 40: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/40.jpg)
Asset profile Consumption profile (in $10,000 dollars) (in $10,000 dollars)
Solid line – model Dashed line – data
Predictions versus data: SCF (Survey of Consumer Finance) in 2004, excluding the 5% wealthiest
Gourinchas and Parker (2002): “Young consumers behave as buffer-stock agents Around age 40, the typical household starts accumulating liquid assets for retirement…”
Key parameters:
and survival probabilities {mt} [source: Social Security Adm.] Gourinchas and Parker (2002): “…the profiles are very sensitive to small variations in the discount factor”
![Page 41: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/41.jpg)
Asset profile Consumption profile (in $10,000 dollars) (in $10,000 dollars)
Solid line – model Dashed line – data
Predictions versus data: SCF (Survey of Consumer Finance) in 2004, excluding the 5% wealthiest
Gourinchas and Parker (2002): “Young consumers behave as buffer-stock agents Around age 40, the typical household starts accumulating liquid assets for retirement…”
Key parameters:
and survival probabilities {mt} [source: Social Security Adm.] Gourinchas and Parker (2002): “…the profiles are very sensitive to small variations in the discount factor”
![Page 42: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/42.jpg)
Job tenures of inexperienced and experienced workers
Hall (AER, 1982): “by age 24, the average worker has held four jobs out of the ten he or she will hold in an entire career.” Davis and Haltiwanger (NBER Macro, 1990): “March-to-March establishment-level employment changes, we calculate that manufacturing’s rates of … destruction averaged 11.3% per year … quarter-to-quarter rates are larger yet … 5.62% on a quarterly basis.”
Observations Calibration outcomes Average number of jobs held
… annual job destruction rate for experienced worker in the U.S. model economy is 14.4%
![Page 43: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/43.jpg)
Productivity process of firms
Parameters that suppress European unemployment in tranquil times by 1.5 percentage points, given the above layoff tax (months of low-type’s average earnings)
0
1
2
3
4
5
6
The productivity will remain the same at z with probability 1-pz. With probability pz, the new productivity is a random draw from a normal distribution having mean 0.5 and standard deviation σz that has been truncated to the unit interval [0, 1].
Parameters that attain U.S. job turnover data
![Page 44: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/44.jpg)
Productivity process of firms
Parameters that suppress European unemployment in tranquil times by 1.5 percentage points, given the above layoff tax (months of low-type’s average earnings)
0
1
2
3
4
5
6
The productivity will remain the same at z with probability 1-pz. With probability pz, the new productivity is a random draw from a normal distribution having mean 0.5 and standard deviation σz that has been truncated to the unit interval [0, 1].
Parameters that attain U.S. job turnover data
![Page 45: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/45.jpg)
Tranquil times: Layoff tax suppresses European unemployment
U.S.
Europe
![Page 46: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/46.jpg)
Tranquil times Turbulent times
Skill loss upon exogenous none governed by transition job destruction: probability Europe-specific labor layoff tax and unlimited same as before and market institutions: duration of benefits a minimum wage
A worker with skill level whose job is exogenously terminated, her new skill level is distributed as
![Page 47: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/47.jpg)
Tranquil times Turbulent times
Skill loss upon exogenous none governed by transition job destruction: probability Europe-specific labor layoff tax and unlimited same as before and market institutions: duration of benefits a minimum wage
A worker with skill level whose job is exogenously terminated, her new skill level is distributed as
More turbulence
![Page 48: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/48.jpg)
Tranquil times Turbulent times
Skill loss upon exogenous none governed by transition job destruction: probability Europe-specific labor layoff tax and unlimited same as before and market institutions: duration of benefits a minimum wage
A worker with skill level whose job is exogenously terminated, her new skill level is distributed as
More turbulence
![Page 49: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/49.jpg)
European unemployment by type: turbulence and minimum wage
Tranquil times
![Page 50: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/50.jpg)
European unemployment by type: turbulence and minimum wage
Turbulent times without a minimum wage
![Page 51: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/51.jpg)
European unemployment by type: turbulence and minimum wage
Turbulent times with a minimum wage
![Page 52: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/52.jpg)
Distribution of permanent earnings Distribution of transitory earnings
Data
Turbulent times: U.S. earnings volatility and European unemployment 10%
Model (high-type workers)
![Page 53: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/53.jpg)
Distribution of permanent earnings Distribution of transitory earnings
Data
Turbulent times: U.S. earnings volatility and European unemployment 10%
Model (high-type workers)
![Page 54: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/54.jpg)
Distribution of permanent earnings Distribution of transitory earnings
Data
Turbulent times: U.S. earnings volatility and European unemployment 10%
B = 0.22 B = 0.30
B = 0.15
![Page 55: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/55.jpg)
Distribution of permanent earnings Distribution of transitory earnings
Data
Turbulent times: U.S. earnings volatility and European unemployment 10%
B = 0.22 B = 0.30
B = 0.15
![Page 56: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/56.jpg)
Distribution of permanent earnings Distribution of transitory earnings
Data
Turbulent times: U.S. earnings volatility and European unemployment 10%
B = 0.22 B = 0.30
B = 0.15
![Page 57: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/57.jpg)
6. Disutility of work
Percent change in variance of permanent earnings
Gottschalk and Moffitt (1994): All workers 41% Years of education fewer than 12 55% 12 or more 34%
25 %
50 %
75 %
100 %
7 8 9 10 11 12 13 14
European unemployment in turbulent times
European unemployment exceeds calibration target in tranquil times
![Page 58: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/58.jpg)
6. Disutility of work
Percent change in variance of permanent earnings
Gottschalk and Moffitt (1994): All workers 41% Years of education fewer than 12 55% 12 or more 34%
25 %
50 %
75 %
100 %
7 8 9 10 11 12 13 14
European unemployment in turbulent times
European unemployment exceeds calibration target in tranquil times
![Page 59: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/59.jpg)
6. Disutility of work
Percent change in variance of permanent earnings
Gottschalk and Moffitt (1994): All workers 41% Years of education fewer than 12 55% 12 or more 34%
25 %
50 %
75 %
100 %
7 8 9 10 11 12 13 14
European unemployment in turbulent times
European unemployment exceeds calibration target in tranquil times
![Page 60: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/60.jpg)
6. Disutility of work
Percent change in variance of permanent earnings
Gottschalk and Moffitt (1994): All workers 41% Years of education fewer than 12 55% 12 or more 34%
25 %
50 %
75 %
100 %
7 8 9 10 11 12 13 14
European unemployment in turbulent times
European unemployment exceeds calibration target in tranquil times
![Page 61: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/61.jpg)
Unemployment in Europe and in the U.S.
Unemployment (percent)
Tranquil times
Turbulent times
Europe
U.S.
![Page 62: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/62.jpg)
Unemployment in Europe and in the U.S.
Tranquil times
Turbulent times
Europe
U.S.
Flow rates into and out of unemployment (in bi-monthly model frequency)
![Page 63: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/63.jpg)
Unemployment in Europe and in the U.S.
Unemployment (percent)
Turbulent times
Europe
U.S.
Europeans by age groups
![Page 64: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/64.jpg)
Search intensity of low-type workers in Europe in tranquil times
![Page 65: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/65.jpg)
Search intensity of high-type workers in Europe in tranquil times
![Page 66: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/66.jpg)
High-type workers loss of earnings relative to the age-earnings profile, after an ‘earnings shock’ of 10%, in the U.S.
Moffitt & Gottschalk (1995): Over the 1970s and 1980s, “an increase in covariances … larger for the older age groups and for the low-order covariances”
Percentage increase in earnings autocovariances between tranquil and turbulent times
Age group 25-34 35-44 45-54
Lag order
1-4 5.4 25.3 54.1
5-9 2.6 15.0 39.4
10-15 3.0 5.3 23.4
Age group 45-54
![Page 67: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/67.jpg)
High-type workers loss of earnings relative to the age-earnings profile, after an ‘earnings shock’ of 10%, in the U.S.
Moffitt & Gottschalk (1995): Over the 1970s and 1980s, “an increase in covariances … larger for the older age groups and for the low-order covariances”
Percentage increase in earnings autocovariances between tranquil and turbulent times
Age group 25-34 35-44 45-54
Lag order
1-4 5.4 25.3 54.1
5-9 2.6 15.0 39.4
10-15 3.0 5.3 23.4
Age group 45-54
![Page 68: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/68.jpg)
High-type workers loss of earnings relative to the age-earnings profile, after an ‘earnings shock’ of 10%, in the U.S.
Moffitt & Gottschalk (1995): Over the 1970s and 1980s, “an increase in covariances … larger for the older age groups and for the low-order covariances”
Percentage increase in earnings autocovariances between tranquil and turbulent times
Age group 25-34 35-44 45-54
Lag order
1-4 5.4 25.3 54.1
5-9 2.6 15.0 39.4
10-15 3.0 5.3 23.4
Age group 45-54
![Page 69: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/69.jpg)
This paper OLG Bewley growth model Ben-Porath human capital technology Ex ante heterogeneity (high school / college)
earlier findings carry over to and are consistent with w research on aggregate growth models, life-cycle w dynamics and job creation/destruction European minimum wage causes youth unemployment Low-type workers are more prone to shorten careers Endogenous age-dependent earnings persistence w (Moffitt and Gottschalk, working paper 1995)
Turbulence and generous European benefits (JPE 1998)
Turbulence increases European unemployment … but leaves U.S. unemployment unchanged.
In tranquil times, European unemp. below that of the U.S. In turbulent times, older Europeans suffer long-term unemp.
European layoff costs / stochastic aging (ECMA 2008)
Framework robustness
Yes, matching and search- island (JME -07a) No, employment-lottery rep. family (JME -07b)
Probing the “tax story” to European unemployment
Complete markets and employment lotteries are not necessary. Given indivisible labor, an agent can instead vary length of labor market career (‘time averaging’) and save for consumption (NBER Macro Annual 2006) …. ex-post successful agents are first to shorten careers, among ex-ante identical agents (JME -08) …. agents with “steeper” earnings profiles choose longer careers (RED -13)
Connections to Ljungqvist and Sargent’s earlier inquiries
![Page 70: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/70.jpg)
This paper OLG Bewley growth model Ben-Porath human capital technology Ex ante heterogeneity (high school / college)
earlier findings carry over to and are consistent with w research on aggregate growth models, life-cycle w dynamics and job creation/destruction European minimum wage causes youth unemployment Low-type workers are more prone to shorten careers Endogenous age-dependent earnings persistence w (Moffitt and Gottschalk, working paper 1995)
Turbulence and generous European benefits (JPE 1998)
Turbulence increases European unemployment … but leaves U.S. unemployment unchanged.
In tranquil times, European unemp. below that of the U.S. In turbulent times, older Europeans suffer long-term unemp.
European layoff costs / stochastic aging (ECMA 2008)
Framework robustness
Yes, matching and search- island (JME -07a) No, employment-lottery rep. family (JME -07b)
Probing the “tax story” to European unemployment
Complete markets and employment lotteries are not necessary. Given indivisible labor, an agent can instead vary length of labor market career (‘time averaging’) and save for consumption (NBER Macro Annual 2006) …. ex-post successful agents are first to shorten careers, among ex-ante identical agents (JME -08) …. agents with “steeper” earnings profiles choose longer careers (RED -13)
Connections to Ljungqvist and Sargent’s earlier inquiries
![Page 71: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/71.jpg)
This paper OLG Bewley growth model Ben-Porath human capital technology Ex ante heterogeneity (high school / college)
earlier findings carry over to and are consistent with w research on aggregate growth models, life-cycle w dynamics and job creation/destruction European minimum wage causes youth unemployment Low-type workers are more prone to shorten careers Endogenous age-dependent earnings persistence w (Moffitt and Gottschalk, working paper 1995)
Turbulence and generous European benefits (JPE 1998)
Turbulence increases European unemployment … but leaves U.S. unemployment unchanged.
In tranquil times, European unemp. below that of the U.S. In turbulent times, older Europeans suffer long-term unemp.
European layoff costs / stochastic aging (ECMA 2008)
Framework robustness
Yes, matching and search- island (JME 2007a) No, employment-lottery rep. family (JME 2007b)
Probing the “tax story” to European unemployment
Complete markets and employment lotteries are not necessary. Given indivisible labor, an agent can instead vary length of labor market career (‘time averaging’) and save for consumption (NBER Macro Annual 2006) …. ex-post successful agents are first to shorten careers, among ex-ante identical agents (JME -08) …. agents with “steeper” earnings profiles choose longer careers (RED -13)
Connections to Ljungqvist and Sargent’s earlier inquiries
![Page 72: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/72.jpg)
This paper OLG Bewley growth model Ben-Porath human capital technology Ex ante heterogeneity (high school / college)
earlier findings carry over to and are consistent with w research on aggregate growth models, life-cycle w dynamics and job creation/destruction European minimum wage causes youth unemployment Low-type workers are more prone to shorten careers Endogenous age-dependent earnings persistence w (Moffitt and Gottschalk, working paper 1995)
Turbulence and generous European benefits (JPE 1998)
Turbulence increases European unemployment … but leaves U.S. unemployment unchanged.
In tranquil times, European unemp. below that of the U.S. In turbulent times, older Europeans suffer long-term unemp.
European layoff costs / stochastic aging (ECMA 2008)
Framework robustness
Yes, matching and search- island (JME 2007a) No, employment-lottery rep. family (JME 2007b)
Probing the “tax story” for European unemployment
Complete markets and employment lotteries are not necessary. Given indivisible labor, an agent can instead vary length of labor market career (‘time averaging’) and save for consumption (NBER Macro Annual 2006) …. social security can put careers at a corner solution …. permanent neg. earnings shocks can shorten careers …. agents with “steeper” earnings profiles choose longer careers (RED 2014)
Connections to Ljungqvist and Sargent’s earlier inquiries
![Page 73: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/73.jpg)
![Page 74: A Life-Cycle Model of Trans-Atlantic Employment Experiences...OLG search-island model with indivisible labor . Ex ante heterogeneity: 2 types (L and H) distinguished by parameters](https://reader035.vdocuments.site/reader035/viewer/2022081522/5f75ef9a05c0da199b3e1322/html5/thumbnails/74.jpg)
Workers supply labor and invest in human capital
Exogenous job destruction rate λ (the same fraction of workers must leave the labor market)
Endogenous job destruction by firms at rate q (the same fraction of workers must leave the labor market)
~
Firms rent capital and produce
Realization of stochastic events
Firms with productivity z demand labor
Additional forced layoffs of inexperienced workers at rate λ – λ (but no jobs are destroyed)
Earnings shock θ
Human capital invest. outcome
Workers quit voluntarily (but no jobs are destroyed)
Workers consume and make decisions for next period
Firm productivity
Human capital loss
Continuing employed inexperienced workers become experienced with prob. π
Random matching in the labor market