Chicago Fed, Report: The Dual U.S. Labor Market Uncovered

“Labor market frictions are basically irrelevant for primary sector workers who make up around 55 percent of the population. These workers are almost always employed and they very rarely experience unemployment. They also seamlessly move from non-participation to employment unlike workers in the secondary and tertiary sectors. The secondary sector, which constitutes 14 percent of the population, exhibits high turnover and high unemployment and absorbs most of the short-run fluctuations in the labor market, at both seasonal and business cycle frequencies. Workers in this sector are six times more likely to move between labor market states than those in the primary tier and are 10 more likely to be unemployed than their primary counterparts. The tertiary sector mostly includes workers who are only loosely attached to the labor market and has a very low employment-to-population ratio. These workers mostly experience unemployment when they enter the labor force from non-participation but do not share the high job-loss rate of secondary workers.”

“Because the total labor market is the sum of these three very different parts, average outcomes, which are often used for to quantitatively discipline macroeconomic models of the labor market, are not reflective of the labor market experiences of anyone in the population. This observation helps put into perspective the difficulties mainstream quantitative models face in capturing key aspects of labor market dynamics.”