Directed Search Over the Life Cycle

Abstract

We develop a life-cycle model of the labor market in which di¤erent worker-…rm matches have di¤erent quality and the assignment of the right workers to the right …rms is time consuming because of search and learning frictions. The rate at which workers move between unemployment, employment and across di¤erent …rms is endogenous because search is directed and, hence, workers can choose whether to seek low-wage jobs that are easy to …nd or high-wage jobs that are hard to …nd. We calibrate our theory using data on labor market transitions aggregated across workers of di¤erent ages. We validate our theory by showing that it predicts quite well the pattern of labor market transitions for workers of di¤erent ages. Finally, we use our theory to decompose the age pro…les of transition rates, wages and productivity into the e¤ects of age variation in work-life expectancy, human capital and match quality.JEL Classi…cation: E24; J63; J64

Late Career Job Loss and the Decision to Retire

“…Both probabilities for older workers are lower than their counterparts for all ages. This is consistent with other studies documenting that mobility between labor force states declines with age (e.g., Menzio et al., ).…”

Life-cycle search, match quality and Japan’s labor market

“…8 Chéron et al (2008Chéron et al ( , 2011 and Hahn (2009). 11 This approach would require firms to post long-term contracts rather than wages, as in Menzio et al (2010). 12 Note that the unit of ''age'' here is not necessarily in years, but in the number of model periods, such that if a model period is one quarter (month), complete segmentation implies workers are segmented into different labor markets by the quarter (month) of birth.…”

“…Recent models allow far more general specifications in which workers live for many periods (Chéron et al, 2008(Chéron et al, , 2011 or for a constant duration in continuous time (Hahn, 2009), enabling more realistic analyses over the life-cycle. Menzio et al (2010) develops a life-cycle directed search model and attempts to match key facts over worker life-cycle, but differs from our model in adopting long-term contracts and allowing the labor market to be segmented by age, through firms posting contracts that specify applicant age.…”

Informality over the life-cycle

“…Indeed, Chéron et al (2013) and Menzio et al (2016) show that the probability to find a formal job varies considerably with the age of the individuals, thereby calling for age-dependent labor market frictions. Several papers document the particular dynamic of informality rate over the life cycle (Maloney, 1999;Bosch and Maloney, 2010;Narita, 2011;Garcia, 2015).…”