Heterogeneity and gross worker flows

This paper extends the three-state model of labor supply and worker flows developed by Krusell, Mukoyama, Rogerson and Şahin (American Economic Review, 2017) to study dynamic individual behavior by allowing for ex-ante heterogeneity in workers' abilities in the market and in their valuation of non-market time. The extended model replicates the key features of the distributions of personal employment rates, OLF rates, and residual wages found in the SIPP data. Individuals with relatively high rents from being employed are more likely to stay in the labor force by cycling back and forth between employment and unemployment from month to month. Individuals with relatively low rents from employment transition between employment and OLF.