Sorting Models of Labor Mobility, Turnover, and Unemployment
Utilizing a model in which individuals search among lotteries on likely success at different jobs, this paper analyzes both the search decision when unemployed and the implications of the sorting process. The model correctly predicts both the direction and convexity of the age-unemployment relationship and the impact of experience on turnover and wages. Actions taken when unemployed have an important impact on equilibrium turnover rates, unemployment rates, and the work history of the pool of unemployed. The sorting model is used to analyze racial differences in youth unemployment and major empirical features of low income labor markets.