Essays on labor market flows

The first essay explores an environment characterized by search friction and the accumulation of non-firm specific skill. In this environment, a competitive search equilibrium has the following properties: Investment in skill is below the socially efficient level; there will not emerge separate markets catering to skilled and non-skilled workers. An alternative equilibrium concept that incorporates up-front payments from workers to firms does not resolve the problem of under-investment. However, it does eliminate the possibility of socially inefficient search and turnover that would result from the incentive for workers to look for better paying jobs in the absence of payments. In some economies but not all, a system of taxes and transfers is shown to resolve the under-investment problem.; The second essay investigates a mechanism working behind an observation that job reallocation pace declines with establishment age. It develops a search friction model in which (i) workers seek to move from establishments of low expected income jobs to those of high expected income jobs, (ii) establishment owners maximize the expected profits by putting optimal recruiting efforts, and (iii) as a consequence, establishment employment size is a discrete state stochastic process. Stochastic uncertainties about future levels of establishment productivity are put into the model to generate endogenous establishment cohort. The observed difference in job reallocation pace points to a hypothesis that older establishments benefit from productivity gains as a by-product of past experiences. The model is estimated under a particular constraint using matched employer-employee data for the private sector in Denmark. The results suggest the existence of non-negligible learning-by-doing effect, and simulations based on the estimated values of parameters generate systematic difference in job reallocation pace across different establishment age classes.