Why is unemployment higher for younger individuals? We address this question in a frictional model of the labor market that features learning about occupational fit. In order to learn the occupation in which they are most productive, workers sample occupations over their careers. Because young workers are more likely to be in matches that represent a poor occupational fit, they spend more time in transition between occupations. Through this mechanism, our model can replicate the observed age differences in unemployment which, as in the data, are due to differences in job separation rates.
We document how export quantities and prices evolve after entry to a market. Controlling for marginal cost, and taking account of selection on idiosyncratic demand, there are economically and statistically significant dynamics of quantities, but no dynamics of prices. To match these facts, we estimate a model where firms invest in customer base through non-price actions (e.g. marketing and advertising), and learn gradually about their idiosyncratic demand. The model matches quantity, price and exit moments. Parameter estimates imply costs of adjusting investment in customer base, and slow learning about demand, both of which generate sluggish responses of sales to shocks.
We show that in successful episodes of export market entry, there are statistically and economically significant post-entry dynamics of quantities, but no post-entry dynamics of markups. This suggests that shifts in demand play an important role in successful entry, but that firms do not use dynamic manipulation of markups as an instrument to shift demand. We structurally estimate two competing models of customer base accumulation to match these moments. In the first model, firms use marketing and advertising to acquire new customers and thereby shift demand and increase sales. In the second, they use temporarily low markups to do so. The marketing and advertising model fits the quantity and markup moments well, and implies that successful entry is associated with high selling expenses. The second model cannot simultaneously fit quantity and markup moments, even with a counterfactually high price elasticity of demand and trade elasticity. We conclude that successful market entry is more likely to be associated with high selling expenses than low markups.
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