Economics Brown Bag Seminar Series – Yusuf Mercan (The University of Melbourne)

Title: Job Mobility and Unemployment Risk

Abstract: Job mobility entails excess unemployment risk: the probability of job loss is 15% in a job’s first year, and then quickly stabilizes to 4%, a pattern we confirm in three U.S. household panels. The value of unemployment may hence affect employed workers’ willingness to engage in job mobility. We formalize this mechanism in a search model in which job offers are lotteries: probability weights on eventual job qualities (a generalization of the experience goods model of jobs). Lotteries are heterogeneous in those weights. The separation-into-unemployment option limits the downside risk of accepting job lotteries, i.e. of engaging in job mobility. We explore the implication that UI insures the downside risk of job-to-job transitions, and thereby subsidizes job mobility of employed workers, and tilts the job composition to ex-ante riskier ones.