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The Cyclical Job Ladder

Fabien Postel-Vinay and Giuseppe Moscarini
Journal article | Annual Review of Economics

Many theories of labor market turnover generate a job ladder. Due to search frictions, workers earn rents from employment. All workers agree on which jobs are, in this sense, more desirable and slowly climb the job ladder through job-to-job quits. Occasionally, negative shocks throw them off the ladder and back into unemployment. We review a recent body of theory and empirical evidence on labor market turnover through the lens of the job ladder. We focus on the critical role that the job ladder plays in transmitting aggregate shocks, through the pace and direction of employment reallocation, to economic activity and wages and in shaping business cycles more generally. The main evidence concerns worker transitions, both through nonemployment and from job to job, between firms of different sizes, ages, productivity levels, and wage premiums, as well as the resulting earnings growth. Poaching by firms up the ladder is the main engine of reallocation, which shuts down in recessions.