Life-Cycle Search, Match Quality and Japan's Labor Flow

Author Name Julen ESTEBAN-PRETEL  (National Graduate Institute for Policy Studies) /FUJIMOTO Junichi  (the University of Tokyo)
Creation Date/NO. April 2011 11-E-041
Research Project Empirical Analysis of Japan's Labor Market: Policy Responses to Fertility Decline and Population Aging
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The Japanese labor market displays U-shaped unemployment and separation rates, and declining job-finding rates as workers age. Traditional infinite horizon search models of the labor market cannot account for such patterns. We develop a life-cycle search and matching model that features random match quality and incorporates elements capturing several main characteristics of the Japanese labor market. We show that the model, calibrated for Japan, replicates the life-cycle properties of the data. Our model, following an empirically plausible productivity drop, produces changes in the steady state levels of the unemployment and finding rates similar in magnitude to those observed in Japan since the 1980s.