Heterogeneous job-matches and the cyclical behavior of labor turnover

Worker flows to and from unemployment simultaneously occur over the US busi ness cycle, and the size of the flows is positively linked to the unemploym ent rate. Unemployment flows and the unemployment rate are highly volatile, persistent and countercyclical. Inflows lead the unemployment rate, and th e unemployment rate leads outflows over the business cycle. The one-sector stochastic growth model is augmented by matching frictions in the labor mar ket and match-specific productivity shocks that introduce ex post heterogen eous job-matches. Matching frictions help generate the lead-lag relationshi p between unemployment flows and the unemployment rate. Combined with heter ogeneous job-matches they generate endogenous unemployment flows and an une mployment rate whose dynamic characteristics match observed data. (C) 1999 Elsevier Science B.V. All rights reserved. JEL classification: E32; J63; J6 4.