Life-cycle worker flows and cross-country differences in aggregate employment

Abstract

Cross-country employment differences are concentrated among women, youth, and older individuals. In this paper, we estimate employment, unemployment and labor-force participation flows by age and gender and study their contributions to aggregate employment differences across a large panel of European countries. Employment outflows are the main source of employment variation for prime-age men, whereas the inflows are quantitatively more important for women and young individuals. In addition, labor-force participation flows account for a substantial share of employment variation across all demographic groups. We develop and calibrate a life-cycle DMP model consistent with these facts. According to our model, endogenous labor-force participation and search intensity act as amplification mechanisms, allowing small differences in match productivity and job destruction rates to explain much of the cross-country differences in aggregate employment.