Job specialization and labor market turnover

Abstract

I investigate the decline in labor market turnover over recent decades, in particular the fall in job finding and separation rates. I analyze the role of an increase in the specialization of jobs in accounting for this decline. Combining individual level data from NLSY79 with data on skills from the ASVAB and O*NET, I estimate a standard Mincerian wage regression augmented with an empirical measure of mismatch. I find that jobs on average are specialized and that specialization has increased by 15 percentage points since 1995. To quantify the impact of this increasing job specialization on labor market turnover, I build an equilibrium search and matching model with two-sided ex-ante heterogeneity. Workers have different skill endowments and jobs have different skill requirements. The specialization of a job measures the impact of mismatch on match productivity. I show that as jobs become more specialized, my model is able to explain over 50% of the observed decline in labor market turnover. As job specialization increases, well-matched firms and workers choose to remain in their matches longer. This leads to an increase in the proportion of well-matched workers and firms, which in turn results in a decline in labor market turnover.