Information Frictions in Labor Markets: Cross-Country Evidence from Employment Durations

This paper builds a database of individual labor market outcomes for 31 developed and developing countries to measure the relationship between labor market turnover and aggregate income across countries. We show that average employment duration is increasing with aggregate income: labor market turnover is higher and job stability lower in low income countries. We analyze this stylized fact through the lens of an experience good model of labor market turnover to understand to what extent imperfect information about employee-employer match quality, i.e. informational friction, explains the cross-country variation in the distribution of employment durations.

Written with Charles Gottlieb (University of St Gallen) and Markus Poschke (McGill University)