Unemployment, job nding, and job separation rates exhibit patterns of decline
as worker age increases in the U.S. We build and numerically simulate a search and
matching model of the labor market that incorporates a life-cycle structure to account
for these empirical facts. The model features random match quality, which, with
positive probability, is not revealed until production takes place. We show that the
model, calibrated to U.S. data, is able to reproduce the empirical patterns of unem-
ployment and job transition rates over the entire life-cycle. Both decreasing distance
to retirement as a worker ages, and ex ante unknown match quality, are essential
in delivering these results. We then explore, both analytically and numerically, the
eciency implications of the model.
|