Unemployment Fluctuations Over the Life Cycle

Jean-Olivier Hairault (1, 2) , François Langot (3, 4) , Thepthida Sopraseuth (5)

1 PSE - Paris School of Economics
2 PJSE - Paris Jourdan Sciences Economiques
3 GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux
4 TEPP - Travail, Emploi et Politiques Publiques
5 CEPREMAP - Centre pour la recherche économique et ses applications

In this paper, we show that (i) the volatility of worker flows increases with age in US CPS data, and (ii) a search and matching model with life-cycle features, endogenous separation and search effort, is well suited to explain this fact. With a shorter horizon on the labor market, older workers' outside options become less responsive to new employment opportunities, thereby making their wages less sensitive to the business cycle. Their job finding and separation rates are then more volatile along the business cycle. The horizon effect cannot explain the significant differences between prime-age and young workers as both age groups are far away from retirement. A lower bargaining power on the youth labor market brings the model closer to the data. JEL Classification: E32, J11, J23

Mots clés: life cycle; search; matching; business cycle

Domaines: Economies et finances

Jean-Olivier Hairault, François Langot, Thepthida Sopraseuth. Unemployment Fluctuations Over the Life Cycle. 2019. ⟨hal-01984987⟩