The purpose of this research is to develop a theoretical framework that can explain why workers and jobs differ in their responses to aggregate shocks. In particular, this research is motivated by the observation that empirically, certain groups of workers appear more likely to change jobs and move into and out of unemployment over the business cycle, and that certain jobs and certain sectors appear more likely to experience turnover during particular phases of the business cycle. Gaining a better understanding of why the effects of aggregate fluctuations are so different across individual workers and firms serves two purposes. First, it is essential for arriving at an estimate of the costs of aggregate fluctuations, since different individuals bear different costs from aggregate fluctuations. This estimate is important in assessing the benefits of pursuing macroeconomic stabilization policies. Second, studying the implications of competing macroeconomic theories on different subgroups of the labor market can highlight differences between these macro theories, which can then be tested against micro level data on workers and firms in order to understand the causes of aggregate fluctuations. To study these issues, several forms of heterogeneity both across workers and across firms are studied. Examples of these include differences in productivity or specialization of skill across workers on the one hand, and differences in rent sharing arrangements, cyclical sensitivity and layoff risk, and match productivity across jobs on the other. Aggregate shocks are introduced into these heterogeneous agent environments to study the behavior of the different agents in response to these shocks. This approach is used to identify the implications associated with different forms of heterogeneity across workers and firms, or with different types of aggregate shocks.
