Justin Franco Lam
Job Recalls and Worker Flows over the Life Cycle (with Xincheng Qiu)
Abstract: The share of jobless spells that end with recalls, i.e., returning to the previous job, as opposed to finding a new job, is strongly increasing in age. The fact is robust to an extensive set of controls and various alternative sample selections, and is confirmed in administrative data. Recalls lead to different wage outcomes than exit to new jobs or job to job transitions. Throughout the life cycle, wages are barely changed after recalls, and the distribution of wage changes is very concentrated. We find that a job-ladder search model with recall options can successfully account for all documented facts. The introduction of recall options provides a novel mechanism that reconciles the puzzle of a positive comovement between separation and job finding rate over the life cycle. The model highlights that the deterioration of matching efficiency in bad times hurts young workers more than old workers, because the young rely more on the matching function of the labor market to find a new job, whereas the old rely less and get more recalls.