On-the-Job Search Over the Business Cycle

Abstract

On-the-Job Search is one of the most common and efficient ways to look for a new job: most of the time workers move directly from one employment position to another (E-to-E) without an intervening spell of unemployment. E-to-E transitions are a relevant component of total labour flows and have a definite cyclical pattern. This paper computes E-to-E worker flows through the development of a vacancy chain model. An iterative procedure is used to compute the successive reallocation runs, beginning from an autonomous vacancy and then to reconstruct the complete E-to-E transition process. The procedure is implemented and applied to a large micro-panel based on a highly industrialized Italian region from 1982 to 1996. E-to-E transitions are an increasingly large portion of worker flows in the labour market. They are clearly cyclic and the number of transitions increases over time as the labour market becomes tighter. These are the flows that explain labour market dynamics in upswings and recessions. Search models that look only at flows between employment, unemployment and outside of the labour force underestimate labour mobility and its cyclical pattern.