March 3, 2026

Heterogeneity and gross worker flows

Key Points

The model explains how individuals with high employment rents are likely to remain in the labor force, often shifting between jobs and unemployment.
Data shows that personal employment and out-of-labor-force rates vary significantly based on individual circumstances and market valuation.
This analysis builds on a previous model from 2017, incorporating heterogeneity to enhance our understanding of worker behavior.
The findings indicate that low-rent individuals may frequently transition between employment and being out of the labor force.

Abstract

This paper extends the three-state model of labor supply and worker flows developed by Krusell, Mukoyama, Rogerson and ðSahin (American Economic Review, 2017) to study dynamic individual behavior by allowing for ex-ante heterogeneity in workers' abilities in the market and in their valuation of non-market time. The extended model replicates the key features of the distributions of personal employment rates, OLF rates, and residual wages found in the SIPP data. Individuals with relatively high rents from being employed are more likely to stay in the labor force by cycling back and forth between employment and unemployment from month to month. Individuals with relatively low rents from employment transition between employment and OLF.

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Heterogeneity and gross worker flows

Key Points

Abstract

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