A longitudinal analysis of search frictions and matching in the U.S. labor market

Abstract

This paper takes a partial equilibrium on-the-job search model to a decade (1996–2006) of repeated cross-sections from the U.S. Current Population Survey. Each month, a set of parameters ruling worker mobility between labor market states and along the wage ladder is estimated using wage distributions and individual transitions. In particular, job-to-job mobility is decomposed into a voluntary component (on-the-job search) and an involuntary one (job reallocation). The resulting time series of transition parameters are first used in a longitudinal analysis of labor turnover and search frictions. Job reallocations are shown to be key in the acyclical behavior of the job separation rate, and in the procyclical behavior of the probability of changing job. Moreover, an index of search frictions is computed and shown to follow no cyclical pattern. The paper then turns to an estimation of the matching function with both unemployed and employed job seekers. The transition parameters from the job search model are used as weights in an aggregate indicator of labor supply. The inclusion of employed workers increases the estimates of the elasticities of the matching function with respect to its two inputs (labor supply and job vacancies).