The Dual U.S. Labor Market Uncovered

• Department of Economics

In this seminar, Aysegul Sahin (University of Texas at Austin and NBER) will present the paper "The Dual U.S. Labor Market Uncovered."

Aggregate U.S. labour market dynamics are well approximated by a dual labour market supplemented with a third home-production segment. We estimate a Hidden Markov.

Model with (in-)equality restrictions, a machine-learning method, to uncover this structure in which the different market segments are identified through inequality constraints on labour market transition probabilities. This method yields time series of stocks and flows for the three labour market segments for 1980-2021. Primary sector workers, who make up around 55 percent of the population, are almost always employed and rarely experience unemployment. The secondary sector, which constitutes only 14 percent of the population absorbs most of the short-run fluctuations in the labour market, both at seasonal and business cycle frequencies. Workers in this segment experience 6 times higher turnover rates than those in the primary tier and are 10 times more likely to be unemployed than their primary counterparts. The tertiary segment consists of workers who infrequently participate in the labour market but nevertheless experience unemployment when they try to enter the labour force. While we find that young workers, racial minorities, and workers with lower educational attainment are more likely to belong to the secondary sector, the bulk of labour market segment variation across individuals cannot be explained by observables. Our findings imply that aggregate stabilization policies, such as monetary policy, predominantly works through the small but turbulent secondary market.

Co-authors: Hie Joo Ahn (Federal Reserve Board) and Bart Hobijn (Arizona State University and Federal Reserve Bank of San Francisco)

Participation on site will be allowed on a first-come, first-served basis. The event will also be live-streamed via zoom. Participants will receive the zoom link once registered.