Cross-phenomenon restrictions: Unemployment effects of layoff costs and quit turbulence

• Authors: Thomas J. Sargent and Isaac Baley.
• Review of Economic Dynamics
• Labor Economics

Cross-phenomenon restrictions associated with returns to labor mobility can inform calibrations of productivity processes in macro-labor models. We exploit how returns to labor mobility influence effects on equilibrium unemployment of changes in (a) layoff costs, and (b) distributions of skill losses coincident with quits (“quit turbulence”). Returns to labor mobility intermediate both effects. Ample labor reallocations observed across market economies that have different layoff costs imply that a turbulence explanation of trans-Atlantic unemployment experiences is robust to adding plausible quit turbulence.