The reallocation of workers from one job to another involves large numbers of workers at all phases of the business cycle, indeed between 5 and 10 per cent of all employed workers per quarter. In addition, recent empirical evidence confirms job destruction is at least as important as job creation as a source of fluctuations in aggregate employment. In recent work, the investigator has developed a model of the labor market to account for these facts. The purpose of this project is to further develop and then to use the model to analyze a number of important questions regarding the labor market. Some of these questions are: (1) In the context of the model, does the empirical fact that wages tend to be rigid have important quantitative consequences for the level of unemployment and for worker welfare? (2) What are the expected magnitudes of the effects of severance pay and prior separation notice policies on job creation and on job destruction? (3) Technical progress is often associated with the need to reallocate workers from old technologies to new ones. To what extent does this process contribute to unemployment? (4) Who benefits from and who bears the cost of the worker reallocation process? This project is important because answers to these questions have important implications for our better understanding of worker reallocation, and its effects on the experience of unemployed workers as well as on the aggregate level of employment.
