Supersedes Working Paper 15-29 - Declining Labor Turnover and Turbulence
This paper seeks to identify possible sources of this decline using a simple labor matching model with two types of workers, experienced and inexperienced, where the former type faces a risk of skill loss during unemployment. When the skill loss occurs, the worker is required to restart his career and thus suffers a drop in his wage. I show that a higher risk of skill loss results in a lower job separation rate, because workers are willing to accept lower wages in exchange for keeping their jobs. Various other potential hypotheses are also examined in the model.