Seminario 26/08 – Ismael Gálvez Iniesta ( Universitat de les Illes Balears ) – The Entry Wedge: Establishment Process, Job Finding and Aggregate Participation

Información (pendiente de confirmación)

This paper studies the labor-market experience of entrants — workers searching for their first job. Using microdata from France, Spain, the United Kingdom, and the United States, we document two robust empirical regularities: entrants find jobs at substantially lower rates than unemployed workers who have held a job in the past, and entrants exit the labor force at substantially higher rates. Both gaps survive controls for observables and are quantitatively meaningful — entrants find jobs at 30-43% lower rates and exit to inactivity at 1.3-1.7 times the rate of workers with prior employment experience.

We develop a search-and-matching model in which a single mechanism generates both facts as joint equilibrium outcomes: entrants must clear an establishment process before gaining access to regular employment, during which firms incur a flow supervision cost. This supervision cost compresses the surplus from entry-job matches and discourages vacancy creation, lowering entrants’ job-finding rates directly. Lower job-finding rates, in turn, deteriorate the value of remaining in the labor force, leading entrants to exit to inactivity at higher rates.

The calibrated model delivers two main findings. First, the establishment process accounts for a substantial share of the US-France gap in unemployment and labor force participation, identifying a novel entrant-specific channel that the participation literature has overlooked. Second, more generous unemployment insurance for experienced workers lowers entrants’ job-finding rates, despite entrants being ineligible for benefits. The mechanism is anticipatory: firms post fewer entry-level vacancies because they know newly-hired entrants will eventually qualify for the more generous benefits, raising the cost of retaining them.