This paper examines the dynamics of entrepreneurial entry during recessions, with heightened unemployment risk. Empirically, I find that in response to increasing unemployment rate, the propensity for employed workers to become entrepreneurs rises, whereas it diminishes for unemployed individuals. I develop an equilibrium search model of entrepreneurship and unemployment with endogenous job destruction. The decision to enter entrepreneurship is influenced by both opportunistic and separation effects, the latter of which is strengthened by higher unemployment risk. I demonstrate that the absence of separation-induced entry would have led to up to two-percentage-point increase in the unemployment rate during the Great Recession

This paper examines how bargaining frictions generate privately inefficient job separations and amplify unemployment fluctuations. I propose a simple specification of bargaining friction by including bargaining wedges in the standard Nash bargaining model. Such bargaining wedges arise when, for example, wages are determined by alternating offers bargaining, which is often used in the literature to generate real wage rigidity, or when there is asymmetric information about worker's productivity. I show that due to the misalignment between actual surpluses and bargaining surpluses, inefficient separations could be generated, which would in turn induce inefficient unemployment. I highlight a distinct amplification mechanism that operates through the separation margin. The existence of inefficient unemployment due to bargaining friction could accentuate the fluctuation of unemployment. Quantitatively, I find that inefficient unemployment accounts for up to 30% of the total unemployment volatility in the calibrated model.

While minimum wage policy is widely adopted in the real world, can it effectively raise the average wage of lower paid jobs without having large detrimental consequences for employment? The empirical literature fails to establish robust findings. We develop a general-equilibrium search and wage-posting framework with heterogeneous workers and tasks matching in multi-tier labor markets: abstract, routine high-skilled, routine middle-skilled, manual middle-skilled and manual low-skilled. We incorporate rich cross-market spillovers and compositional effects from individual responses to market thickness. As a result of minimum wage hikes, we show that (i) the unemployment rate at the minimum wage binding market is higher, while all other markets enjoy a lower unemployment rate; (ii) employment in the manual low-skilled jobs is lower, whereas employment in the routine high-skilled and manual middle-skilled markets is higher due to cross-market substitutions; and, (iii) employment in other markets has ambiguous responses due to conflicting effects on potential worker entry and unemployment. By calibrating the model to fit the U.S. data, we evaluate the impacts of the federal minimum wage hike (2007-2009) and the on-going minimum wage increase in Seattle (2017-2021). We find that the minimum wage effects on employment on the binding markets depend crucially on the magnitudes of spillover and compositional effects and that the employment effects may be weak in a nonbinding market. Moreover, our results suggest that, while both minimum wage hikes reduce aggregate output, they only generate small effects on submarket average and overall average wages.

This paper studies the connection between multidimensional skill mismatch and labor mobility decisions, and the implications on the aggregate economy thereof. We show empirically that higher skill mismatch induces workers to move to a better matched job. Occupational mobility increases by 0.7 p.p. if skill mismatch increases by 1 standard deviation. Moreover, labor mobility helps reduce skill mismatch, especially for those previously with high skill mismatch. An equilibrium search model featuring skill mismatch and on the job search is developed. Quantitatively, we find that (i) skill mismatch has an important role to play in affecting the labor mobility decisions, as well as the aggregate economy, (ii) about two-thirds of the total skill mismatch can be accounted for by search frictions, which explain half of the occupational mobility and cost about 1% of the aggregate output and welfare, and (iii) aggregate productivity growth has positive impact on both the skill mismatch and occupational mobility.