Recall and Unemployment

Shigeru Fujita and Guiseppe Moscarini

http://d.repec.org/n?u=RePEc:red:sed016:196&r=dge

Using data from the Survey of Income and Program Participation (SIPP) covering 1990-2013, we document that a surprisingly large number of workers return to their previous employer after a jobless spell, and experience very different unemployment and employment outcomes than job switchers. Furthermore, the probability of recall is much less cyclical and volatile than the probability of finding a new job. Building on these facts, we introduce a recall option in a canonical search-and-matching business- cycle model of the labor market. The recall option is lost when the unemployed worker accepts a new job. New matches are mediated by a matching function, which brings together costly vacancy postings and costly search effort by unemployed workers. In contrast, recalls are frictionless and free, and triggered both by aggregate and job-specific shocks. A quantitative version of the model captures well our cross-sectional and cyclical facts through selection of recalled matches. Model analysis shows that recall and search effort significantly amplify the cyclical volatility of job finding and separation rates.

I suspect that the United States economy is rather unique in this high proportion of recall unemployment. But the logic of this may also matter elsewhere as recall is potentially an important outside option for any laid off worker. For the US, Fujita and Moscarini show that it matters indeed.