Working Paper

Declining labor turnover and turbulence

Abstract: Superseded by 18-06. The purpose of this paper is to identify possible sources of the secular decline in the job separation rate over the past four decades. I use a simple labor matching model with two types of workers, experienced and inexperienced, where the former type faces a risk of skill loss during unemployment. When the skill loss occurs, the worker is required to restart his career and thus suffers a drop in his wage. I show that a higher risk of skill loss results in a lower separation rate. The key mechanism is that the experienced workers accept lower wages in exchange for keeping their jobs.

Keywords: Separation Rate; Wage Loss; Turbulence;

JEL Classification: E24; J31; J64;

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2018-02-02

Number: 15-29

Pages: 44 pages