Worker heterogeneity, selection, and employment dynamics in the face of aggregate demand and pandemic shocks

Federico Ravenna and Carl Walsh

No 15043, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In a new Keynesian model with random search in the labor market, endogenous selection among heterogeneous workers amplifies fluctuations in unemployment and results in excess unemployment volatility relative to the efficient allocation. Recessions disproportionately affect low-productivity workers, whose unemployment spells are inefficiently frequent and long. We consider a COVID-recession resulting from a negative demand shock and a surge in exogenous separations. High-productivity workers benefit if separations in a pandemic take the form of temporary layoffs, but this is not true for low-productivity workers. The unemployment consequences are especially severe when nominal interest rates are close to the effective lower bound.

Keywords: Unemployment; Heterogeneity; Selection; Covid-19; Zlb constraint (search for similar items in EconPapers)
JEL-codes: E24 E32 E52 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-dge and nep-mac
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP15043 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:15043

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP15043

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().