Mismatch Cycles

Recognition Program

Authors: Isaac Baley, Ana Figueiredo and Robert Ulbricht

Journal of Political Economy, Vol. 130, No 11, 2943–2984, November, 2022

Using a recently developed worker-occupation mismatch measure for the US labor market, we document that mismatch is procyclical. However, there is substantial heterogeneity by previous employment status: mismatch is procyclical for workers in ongoing job relationships, consistent with the cleansing effect of recessions; but it is countercyclical for the flow of new hires from unemployment, consistent with the sullying effect of recessions. Our empirical findings show that the cleansing effect dominates. We also provide evidence that, conditional on mismatch, business cycle conditions at the start of the match are important in explaining variation in job duration. We explain these empirical patterns through a learning model à la Jovanovic (1979) augmented with adjustment costs and a learning technology that varies over the business cycle.

This paper originally appeared as Barcelona School of Economics Working Paper 1151
This paper is acknowledged by the Barcelona School of Economics Recognition Program