Heterogeneity and Unemployment Dynamics

2008

We analyze how unemployment, job finding and job separation rates react to neutral and investment-specific technology shocks. Neutral shocks increase unemployment and explain a substantial portion of unemployment volatility; investment-specific shocks expand employment and hours worked and mostly contribute to hours worked volatility. Movements in the job separation rates are responsible for the impact response of unemployment. Movements in the job finding rates account for its adjustment path. Our evidence qualifies the conclu- sions by Hall (2005) and Shimer (2007) and warns against using search models with exogenous separation rates to analyze the effects of technology shocks.

This paper challenges conventional views of unemployment. Its results suggest that failure to examine closely labor force transitions has led to a misleading picture of unemployment and the way the labor market functions in general. There are four main conclusions. First, labor force transitions are the principal determinant of fluctuations in employment and unemployment.

2006

This paper evaluates the dynamic response of worker ‡ows, job ‡ows, and vacancies to aggregate shocks in a structural vector autoregression. We identify demand, monetary, and technology shocks by imposing sign restrictions on the responses of output, in ‡ation, the interest rate, and the relative price of investment. No restrictions are placed on the responses of job and worker ‡ows variables. We …nd that both investment-speci…c and neutral technology shocks generate responses to job and worker ‡ows variables that are qualitatively similar to those induced by monetary and demand shocks. However, technology shocks have more persistent e¤ects. The job …nding rate largely drives the response of unemployment, though the separation rate explains up to one third. For job ‡ows, the destruction margin is more important than the creation margin in driving employment growth. Measuring reallocation from job ‡ows, we …nd that monetary and demand shocks do not have signi…cant e¤ects on cumulative job reallocation, whereas expansionary technology shocks have mildly negative e¤ects. We also estimate shock-speci…c matching functions. Allowing for a break in 1984:Q1 shows considerable subsample di¤erences in matching elasticities and relative shock-speci…c e¢ ciency.

chrisnekarda.com

SSRN Electronic Journal, 2000

This paper analyzes the contribution of the socioeconomic and demographic composition of the pool of employed and unemployed individuals to the dynamics of the labor market in diff erent phases of the business cycle. Using individual level data from the Current Population Survey (CPS), we decompose diff erences in employment status transition rates between economic upswings and downturns into composition eff ects and behavioral eff ects. We fi nd that overall composition eff ects play a minor role for the cyclicality of the unemployment outfl ow rate, although the contribution of the duration of unemployment is signifi cant. In contrast, composition eff ects dampen the cyclicality of the unemployment infl ow rate considerably. We further observe that the initially positive contribution of composition eff ects to a higher unemployment outfl ow rate turns negative over the course of the recession. JEL Classifi cation: J63, J64, J21, E24

Working Paper, 2012

This paper proposes an empirical method for estimating a long-run trend for the unemployment rate that is grounded in the modern theory of unemployment. I write down an unobserved components model and identify the cyclical and trend components of the underlying unemployment ‡ows, which in turn imply a time varying estimate of the unemployment trend, the natural rate. I identify a sharp decline in the out ‡ow rate-job …nding rate-since 2000, which was partly o¤set by the secular decline in the in ‡ow rate-separation rate-since 1980s, implying a relatively stable natural rate, currently at 6 percent. Numerical examples show that slower labor reallocation along with the weak output growth explains most of the persistence in unemployment since the Great Recession. Contrary to the business-cycle movements of the unemployment rate, a signi…cant fraction of the low-frequency variation can be accounted for by changes in the trend of the in ‡ows, especially prior to 1985. Finally, I highlight several desirable features of this natural rate concept that makes it a better measure than traditional counterparts. These include statistical precision, the signi…cance of required revisions to past estimates with subsequent data additions, policy relevance and its tight link with the theory.

CEPR Discussion Paper Series, 2020

In a new Keynesian model with random search in the labor market, endogenous selection among heterogeneous workers amplifies fluctuations in unemployment and results in excess unemployment volatility relative to the efficient allocation. Recessions disproportionately affect low-productivity workers, whose unemployment spells are inefficiently frequent and long. We consider a COVID-recession resulting from a negative demand shock and a surge in exogenous separations. High-productivity workers benefit if separations in a pandemic take the form of temporary layoffs, but this is not true for low-productivity workers. The unemployment consequences are especially severe when nominal interest rates are close to the effective lower bound.

Journal of Political Economy, 1986

Brookings Papers on Economic Activity, 1979

and Unemployment: A Reconsideration ECONOMISTS in recent years have come to view unemployment as a dynamic phenomenon. Both theoretical and empirical research have emphasized the role of turnover in understanding unemployment. The instability of employment, the brevity of unemployment spells, and the large flows into and out of unemployment have been central themes of this work.' Note: This research was supported by the research has focused on providing explanations of unemployment that are based on individual maximization. Two primary theoretical paradigmssearch theory and the theory of contracts-have evolved as explanations of why persons rationally choose to be unemployed some of the time. Both are, in an important sense, theories of voluntary unemployment.

RePEc: Research Papers in Economics, 1998

The European Community and the US have experienced vastly di!erent unemployment dynamics over the last two decades. This paper investigates whether these di!erences are due to exposure to di!erent shocks, or reacting di!erently to the same shocks. With the premise of a search theoretic framework and a structural VAR methodology, the paper robustly identi"es aggregate versus reallocative shocks. With the exception of Spain where most of the dynamics seem to be driven by reallocation, it is found that most di!erences in unemployment dynamics arise because of di!erences in responses to shocks. In particular, the US labour market is quicker to adjust than the European Community. This implies that EEC economies might be dynamically &sclerotic', even if the size of the steady-state labour market #ows give the impression that European labour markets are quite active. Various identifying assumptions, additional labour supply shocks and di!erent variables are used, yet the results appear robust. 2001 Elsevier Science B.V. All rights reserved.