the labour market over the business cycle can theory fit the facts we examine the ability of six labour market models to account for the business cycle behaviour of uk labour markets when embedded in a stochastic growth model we assess the models in terms of i their ability to mimic general business cycle correlations and volatility ii their success at explaining the persistence of labour market fluctuations and iii whether the models can explain why the growth and speed of adjustment of labour market variables changes between periods of expansions and contractions the main success of the models is the ability to broadly account for business cycle correlations and co movements and the changes in employment unemployment growth rates between expansions and contractions however there are three main failures a the models tend to produce insufficiently volatile employment and unemployment fluctuations b the models tend to produce too strong a correlation between wages and employment c most of the models generate only brief temporary deviations in unemployment in response to shocks rather than the protracted dynamics of the data

labor market institutions and inflation volatility in the euro area despite having had the same currency for many years emu countries still have quite different inflation dynamics in this paper we explore one possible reason country specific labor market institutions giving rise to different inflation volatilities when unemployment insurance schemes differ as they do in emu reservation wages react differently in each country to area wide shocks this implies that real marginal costs and inflation also react differently we report evidence for emu countries supporting the existence of a cross country link over the cycle between labor market structures on the one side and real wages and inflation on the other we then build a dsge model that replicates the data evidence the inflation volatility differentials produced by asymmetric labor markets generate welfare losses at the currency area level of approximately 0 3 of steady state consumption

the macroeconomic consequences of raising the minimum wage capital accumulation employment and the wage distribution we study the quantitative impact of a rise in the minimum wage on macroeconomic outcomes such as employment the stock of capital and the distribution of wages our modeling framework is the large firm search and matching model our comparative statics are in line with previous empirical findings a moderate increase in the minimum wage barely affects employment while it compresses the wage distribution and generates positive spillovers on higher wages the model also predicts an increase in the stock of capital next we perform the policy experiment of introducing a 10 dollar minimum wage our results suggest large positive effects on capital 4 0 and output 1 8 with a decrease in employment by 2 8 the introduction of a 9 dollar minimum wage would instead produce similar effects on capital accumulation without harming employment

new keynesian perspectives on labor market dynamics abstract we find that demand shocks play an important role for business cycle fluctuations in unemployment and job vacancies the reason is that those shocks give a strong incentive to demand constrained firms to adjust production and thereby labor input furthermore we argue that whether real wage rigidity a la hall 2005 employment fluctuations with equilibrium wage stickiness american economic review 95 50 65 helps explain the remaining part of the unemployment volatility puzzle depends critically on assumptions regarding the form of the wage bargain between firms and workers real wage rigidity tends to generate volatility in employment only in the case in which hours are chosen efficiently if on the other hand the real wage is allowed to affect firms s choices of hours directly the feature of real wage rigidity loses its ability to increase employment volatility

lessons from the u s unemployment insurance experiments recent social experiments have evaluated two reforms of the unemployment insurance ui system reemployment bonuses and job search programs the bonus experiments show that economic incentives affect the length of ui receipt and provide weak evidence that an earlier return to work does not decrease earnings the experiments do not show the favorability of a permanent bonus program as they ignore its effect on the number of the claimants the job search experiments test several more promising reforms nearly all of the combinations of services and increased enforcement reduce ui receipt and have favorable cost benefit analyses earnings often increase though the estimates are imprecise

precautionary saving over the business cycle we study the macroeconomic implications of time varying precautionary savings within a general equilibrium model with borrowing constraints aggregate shocks and uninsurable idiosyncratic unemployment risk our framework generates limited cross sectional household heterogeneity as an equilibrium outcome thereby making it possible to analyse the role of precautionary saving over the business cycle in an analytically tractable way the time series behaviour of aggregate consumption generated by our model is closer to the data than that implied by the hand to mouth and representative agent models and it is comparable to that produced by the krusell and smith 1998 model

job destruction and propagation of shocks this paper considers propagation of aggregate shocks in a dynamic general equilibrium model with labor market matching and endogenous job destruction cyclical fluctuations in the job destruction rate magnify the output effects of shocks as well as making them much more persistent interactions between capital adjustment and the job destruction rate play an important role in generating persistence propagation effects are shown to be quantitatively substantial when the model is calibrated using job flow data incorporating costly capital adjustment leads to significantly greater propagation

the macro effects of unemployment benefit extensions a measurement error approach by how much does an extension of unemployment benefits affect macroeconomic outcomes such as unemployment answering this question is challenging because u s law extends benefits for states experiencing high unemployment we use data revisions to decompose the variation in the duration of benefits into the part coming from actual differences in economic conditions and the part coming from measurement error in the real time data used to determine benefit extensions using only the variation coming from measurement error we find that benefit extensions have a limited influence on state level macroeconomic outcomes we apply our estimates to the increase in the duration of benefits during the great recession and find that they increased the unemployment rate by at most 0 3 percentage point

search theoretic models of the labor market a survey we survey the literature on search theoretic models of the labor market we show how this approach addresses many issues including the following why do workers sometimes choose to remain unemployed what determines the lengths of employment and unemployment spells how can there simultaneously exist unemployed workers and unfilled vacancies what determines aggregate unemployment and vacancies how can homogeneous workers earn different wages what are the tradeoffs firms face from different wages how do wages and turnover interact what determines efficient turnover we discuss various modeling choices concerning wage determination and the meeting process including recent models of directed search

cyclical quality adjustment in the labor market 1 introductionthe u s unemployment rate fell to very low levels during the 1990s even more impressively the unemployment rate for minorities and less educated individuals fell disproportionately convergence of relative unemployment rates in expansions and divergence in recessions has been a feature of the u s economy over the last 30 years there are many possible reasons for this feature for example if the costs of hiring and firing less skilled labor are low one would expect these individuals to have very procyclical employment in this paper i explore an alternative model when there is an excess supply of labor high skilled people take jobs that would normally be occupied by less skilled people in expansions the process reverses with less skilled workers getting access to jobs that they would normally not attain i refer to this process as cyclical quality adjustment reder 1955 p 834 was one of the first to discuss how hiring standards adjust to business cycle conditions quality variations in labor markets arise through upgrading and downgrading of members of the labor force relative to the jobs they are to fill when applicants become scarce employers tend to lower the minimum standards upon which they insist as a condition for hiring a worker to fill a particular job and vice versa when applicants become plentiful since then many papers have developed this idea theoretically and many economic commentators appear to share this view of the labor market for example the economic report of the president states that a strong labor market is particularly important to less advantaged groups in the labor market such as workers with less education younger workers racial and ethnic minorities and immigrants when employers find it hard to fill vacancies they are more willing to hire and train workers whom they might pass over when they have fewer openings and an abundance of applicants council of economic advisors 1999 p 103 likewise the expansion during the 1990s spawned many newspaper articles about the improvement in the types of jobs available to less skilled applicants however there is little systematic empirical work about changes in job assignment in the united states over the business cycle the empirical work in this paper seeks to redress this situation cyclical assignment changes are important for many reasons as mentioned earlier job upgrading is a potential explanation for the greater cyclical variation of employment experienced by less skilled workers it is well known that the unemployment rates of less skilled individuals and minorities are more countercyclical relative to more skilled individuals clark and summers 1981 kydland 1984 keane and prasad 1993 hoynes 1999 the standard explanation for this effect is that low ability workers are more likely to be laid off in downturns because training and hiring costs are lower for these workers no commensurate attention has been paid to the issue of how the decision of who to hire changes over the business cycle however assignment models present a natural explanation for the greater procyclicality of employment of the less skilled both the adjustment cost hypothesis and the upgrading hypothesis imply that less skilled workers will have more procyclical employment empirically they are distinguishable because the upgrading explanation implies that jobs obtained by comparable workers should vary systematically over the cycle the adjustment cost hypothesis relates to the composition of those whose jobs are terminated second these mechanisms suggest a reason why wages are particularly procyclical for job changers recent studies using panel data have indicated that the wages of job starters are much more procyclical than the wages of workers who do not change jobs researchers have suggested various explanations for this result beaudry and dinardo 1991 and macleod and malcomson 1993 present contracting models in which the wages of job starters depend on the state of the labor market when they join the firm

unemployment insurance and precautionary saving abstract models of precautionary saving imply that households will hold more assets when faced with greater income uncertainty however previous empirical studies of income uncertainty have produced somewhat mixed support for the precautionary saving hypothesis in this paper we note that differences in the state contingent income stream available to workers through the unemployment insurance ui program provides an excellent source of variation for testing the presence of a precautionary savings motive simulations of a stochastic life cycle model suggest that a ui system similar to the type currently in place in the u s can lead to a significant reduction in the assets accumulated by a median worker moreover there is considerable variation in the ui benefit schedules for workers living in different states in the u s which provides an exogenous source of variation for empirically testing the precautionary saving hypothesis we carry out this test using data on expected ui benefit replacement rates and financial assets held by households in the survey of income and program participation our empirical results are consistent with the predictions of the model and suggest that reducing the ui benefit replacement rate by 50 percent would increase gross financial asset holdings by 14 percent or 241 for the average worker we also find empirical evidence that this crowd out effect of ui on household saving is stronger for those facing higher unemployment risk and weaker for older workers both of which are implications from our precautionary saving model

modern theory of unemployment fluctuations empirics and policy applications strong and widely accepted evidence shows that the natural rate of unemployment varies over time with substantial amplitude the frictions in the labor market that account for positive normal levels of unemployment are not simple and mechanical instead as a rich modem body of theory demonstrates the natural rate of unemployment is an equilibrium in which the volumes of job seeking by workers and worker seeking by employers reach a balance controlled by fundamental determinants of the relative prices of the two activities in recessions unemployment rises and job vacancies fall the natural explanation is an economywide fall in labor demand but a compelling model that generates a fall in labor demand without a counterfactual fall in productivity has eluded theorists to date nonetheless policymakers have appropriately adopted the view that the natural rate varies over time and is not a simple benchmark for setting monetary instruments

the cyclicality of the user cost of labor abstract the user cost of labor is the expected difference between the present discounted value of wages paid to a worker hired in the current period and that paid to a worker hired in the next period analogous to the price of any long term asset the user cost not wage is the relevant price for a firm that is considering adding a worker i construct its counterpart in the data and estimate that it is substantially more procyclical than average wages or wages of newly hired workers i demonstrate an application of the finding using the textbook search and matching model

matching workers and jobs cyclical fluctuations in match quality using national longitudinal survey of youth data on tenure and wages this article analyzes the extent to which the level of job mismatching varies over the business cycle and how it is dealt with by the labor market i find significant cyclical variation in job match quality and an internalization of the variation by the labor market through wages mismatching occurs more during recessions but is primarily captured in starting wages the evidence suggests the cyclical phenomenon is one of general mismatching rather than an increased number of stopgap jobs during recessions

the cyclicality of the opportunity cost of employment the flow opportunity cost of moving from unemployment to employment consists of forgone public benefits and the forgone consumption value of nonworking time we construct a time series of the opportunity cost of employment using detailed microdata and administrative or national accounts data to estimate benefits levels eligibility take up consumption by labor force status hours taxes and preference parameters the opportunity cost is procyclical and volatile over the business cycle the estimated cyclicality implies far less unemployment volatility in leading models of the labor market than that observed in the data irrespective of the level of the opportunity cost

real wages over the business cycle evidence from panel data one topic on which keynes did not disagree with classical economists was the cyclical behavior of real wages keynes 1936 as well as various classical writers predicted that real wages should move countercyclically quoting the general theory p 17 in general an increase in employment can only occur through the accompaniment of a decline in real wages thus i am not disputing this vital fact which the classical economists have rightly asserted as indefeasible this prediction is based on the premise of competition and a given short run capital stock increases in employment then correspond to more intensive use of capital and through diminishing product lower real wages for this reason evidence by dunlop 1938 and tarshis 1939 that real wages move procyclically was viewed as paradoxical both dunlop and tarshis based their findings on an observed positive correlation between real and money wages which given the procyclical movement of money wages implies a positive correlation between

investment matching and persistence in a modified cash in advance economy abstract we simulate and estimate a new keynesian search and matching model with sticky wages in which capital has to be financed with cash at least partially our objective is to assess the ability of this framework to account for the persistence of output and inflation observed in the data we find that our setup generates enough output and inflation persistence with standard stickiness parameters the key factor driving these results is the inclusion of investment in the cia constraint rather than any other nominal or real rigidity the model reproduces labor market dynamics after a positive increase in productivity hours fall nominal wages hardly react and real wages go up with some delay regarding money supply shocks we investigate the conditions under which our model specification generates the liquidity effect a fact which is absent in most sticky price models

business cycles in the equilibrium model of labor market search and self insurance i introduce risk aversion labor leisure choice capital individual productivity shocks and market incompleteness to the standard model of labor search and matching and investigate the model s cyclical properties i find that the model can generate the observed large volatility of unemployment and vacancies with a reasonable replacement rate of unemployment insurance benefits of 64 labor leisure choice plays a crucial role through additional utility from leisure when unemployed and further amplification from adjustments of hours worked on the other hand the borrowing constraint or individual productivity shocks do not significantly affect the cyclical properties of unemployment and vacancies

renting vs buying a home a matter of wealth accumulation or of geographic stability abstract i study the housing tenure decision in the context of a spatial life cycle model with uninsurable individual income risk plausibly calibrated to match key features of the us housing market i find that the relatively low ownership rate of young households is mainly explained by their high geographic mobility downpayment constraints have minor quantitative implications on ownership rates except for old households i also find that idiosyncratic earnings uncertainty has a significant impact on homeownership rates based on these results i argue that the long term increase in ownership rates observed over the period 1993 2009 was not necessarily due to mortgage market innovations and the relaxation of downpayment requirements as is often argued instead it was simply an implication of us demographic evolution most notably the decline in interstate migration and less importantly population ageing the model predicts that an increase in the income risk i e higher income inequality has a positive impact on geographical mobility of young households which means that young homeowners are less affected by the labour market inefficiency associated with homeownership

the consequences of rigid wages in search models the standard theory of equilibrium unemployment the mortensen pissarides search and matching model cannot explain the magnitude of the business cycle fluctuations in two of its central elements unemployment and vacancies modifying the model to make the present value of wages unresponsive to current labor market conditions amplifies fluctuations in unemployment and vacancies by an order of magnitude significantly improving the performance of the model despite this the welfare consequences of such rigid wages is negligible jel e24 e32 j30 j41 j63 j64

transitions in the german labor market structure and crisis abstract since the so called hartz iv reforms around 2005 and during the global crisis of 2008 2009 the german labor market featured mainly declining unemployment rates we develop a search and matching model with heterogeneous skills to explore the role of structural and cyclical policies for this performance calibrating unemployment benefits to approximate legislation before and after the reforms we find a large reduction in unemployment and its duration with the transition concluding after about three years during the crisis the extended use of short time labor subsidies that prevent jobs from being destroyed is likely to have prevented strong increases in unemployment

unions power collective bargaining and optimal monetary policy we study ramsey policies and optimal monetary policy rules in a model with sticky prices and unionized labour markets collective wage bargaining and unions monopoly power dampen wage uctuations and amplify employment uctuations relatively to a dnk model the optimal

understanding unemployment flows this article reviews the current state of research on unemployment dynamics in macroeconomic models in particular it discusses the increasingly widespread use of the labour market flow approach as implemented via a search and matching process and presents main policy considerations that arise from this approach related to unemployment benefit systems and employment protection it reviews the implications of the labour flow approach for dynamic properties of macroeconomic models and discusses policy implications for macroeconomic and labour market policies finally it presents new evidence on the effectiveness of policies to influence unemployment in and outflows copyright 2011 oxford university press

labor market volatility in the search and matching model the role of investment specific technology shocks abstract shocks to investment specific technology have been identified as a main source of u s aggregate output volatility in this paper we present a model with frictions in the labor market and explore the contribution of these shocks to the volatility of labor market variables namely unemployment vacancies tightness and the job finding rate thus our paper contributes to a recent body of literature assessing the ability of the search and matching model to account for the large volatility observed in labor market variables to this aim we solve a neoclassical economy with search and matching where neutral and investment specific technologies are subject to shocks the three key features of our model economy are i firms are large in the sense that they employ many workers ii adjusting capital and labor is costly iii wages are the outcome of an intra firm nash bargaining problem between the firm and its workers in our calibrated economy we find that shocks to investment specific technology explain 40 of the observed volatility in u s labor productivity moreover these shocks generate relative volatilities in vacancies and the workers job finding rate which match those observed in u s data relative volatilities in unemployment and labor market tightness are 55 and 75 of their empirical values respectively

labor market dynamics when un employment is a social norm this paper proposes a new keynesian model with search and matching frictions in the labor market that can account for the cyclicality and persistence of vacancies unemployment job creation inflation and the real wage after a monetary shock motivated by evidence from psychology unemployment is modeled as a social norm the norm is defined here as the belief that individuals in society prioritize or should prioritize the search for gainful employment whereas those who do not are perceived as outside the norm and consequently stigmatized households pressure the unemployed to find jobs the fewer unemployed workers there are the more supporters the norm has and therefore the greater the pressure and psychological cost experienced by each jobseeker as this psychological cost is procyclical it hinders the wage from absorbing most of the effect of the shock thus the model is able to capture the high volatility of vacancies and unemployment observed in the data accounting for the shimer puzzle the paper also departs from the literature by introducing price rigidity in the labor market inducing additional inertia and persistence in inflation and the real wage after a monetary shock the model s responses after a monetary shock are in line with the responses obtained from a var on us data

private information wage bargaining and employment fluctuations shimer 2005 pointed out that although we have a satisfactory theory of why some workers are unemployed at any given time we don t know why the number of unemployed workers varies so much over time the basic mortensen pissarides 1994 model does not generate nearly enough volatility in unemployment for plausible parameter values this paper extends the mortensen pissarides model to allow for informational rents productivity is subject to publicly observed aggregate shocks and to idiosyncratic shocks that are seen only by the employer it is shown that there is a unique equilibrium provided that the idiosyncratic shocks are not too large the main result is that small fluctuations in productivity that are privately observed by employers can give rise to a kind of wage stickiness in equilibrium and the informational rents associated with this stickiness are sufficient to generate relatively large unemployment fluctuations

do matching frictions explain unemployment not in bad times this paper models unemployment as the result of matching frictions and job rationing job rationing is a shortage of jobs arising naturally in an economic equilibrium from the combination of some wage rigidity and diminishing marginal returns to labor during recessions job rationing is acute driving the rise in unemployment whereas matching frictions contribute little to unemployment intuitively in recessions jobs are lacking the labor market is slack recruiting is easy and inexpensive so matching frictions do not matter much in a calibrated model cyclical fluctuations in the composition of unemployment are quantitatively large

the elasticity of the unemployment rate with respect to benefits abstract calibrated to replicate unemployment fluctuations the standard mortensen pissarides model implies that unemployment rises too strongly when benefits increase under an alternative bargaining assumption right to manage the model matches unemployment fluctuations and implies a reasonable elasticity of unemployment with respect to benefits

the role of shocks and institutions in the rise of european unemployment the aggregate evidence two key facts about european unemployment must be explained the rise in unemployment since the 1960s and the heterogeneity of individual country experiences while adverse shocks can potentially explain much of the rise in unemployment there is insufficient heterogeneity in these shocks to explain cross country differences alternatively while explanations focusing on labour market institutions explain current heterogeneity well many of these institutions pre date the rise in unemployment based on a panel of institutions and shocks for 20 oecd nations since 1960 we find that the interaction between shocks and institutions is crucial to explaining both stylised facts

technological learning and labor market dynamics the search and matching model of the labor market fails to match two important business cycle facts i a high volatility of unemployment relative to that of labor productivity and ii a mild correlation between these two variables we address these shortcomings by focusing on the implementation process of technological innovation that is the empirical nding that new technologies are subject to a learning process we consider a novel source of business cycles namely uctuations in the ease or speed of technological learning and show that a search and matching model featuring such shocks can account for both facts moreover our model provides a new interpretation of news shocks discussed in the recent business cycle literature

search nash bargaining and rule of thumb consumers abstract this paper analyses the effects of introducing two typical keynesian features namely rule of thumb rot consumers and consumption habits into a standard labour market search model rot consumers use the margin that hours and wage negotiation provides them to improve their lifetime utility by narrowing the gap in utility with respect to ricardian consumers this margin for intertemporal optimisation has not been studied yet because this class of restricted agents has been mainly used in models with no equilibrium unemployment our approach allows for a deeper study of the effects of shocks on vacancies unemployment hours wages and how they interact as habits increase rot consumers find it optimal after a positive technology shock to negotiate lower hours and higher wages and this mechanism reduces the simulated correlation between the real wage or productivity and total hours to values closer to those obtained empirically thus with the interaction of rot consumers and consumption habits the labour market search model improves significantly in reproducing some of the stylised facts characterising the us labour market

employment fluctuations with downward wage rigidity the role of moral hazard we study the cyclical dynamics of job creation and destruction when workers effort is not perfectly observable the no shirking constraint may amplify fluctuations in hiring by making firms surplus share procyclical and may cause a burst of inefficient firing when a downturn begins but quantitatively it mainly raises the cost of motivating marginal workers in booms since firms cannot commit to keep them in recessions and thereby strongly damps the countercyclical fluctuations in the separation rate this implies a robust beveridge curve but casts doubt on ramey and watson s 1997 contractual fragility mechanism and worsens shimer s 2005a volatility puzzle

the unemployment volatility puzzle the role of matching costs revisited recently pissarides 2009 has argued that the standard search model with sunk xed matching costs increases unemployment volatility without introducing an unrealistic wage response in new matches we revise the role of matching costs and show that when these costs are not sunk and therefore can be partially passed on to new hired workers in the form of lower wages the amplication mechanism of xed matching

human capital and unemployment dynamics why more educated workers enjoy greater employment stability why do more educated workers experience lower unemployment rates and lower employment volatility empirically these workers have similar job finding rates but much lower and less volatile separation rates than their less educated peers we argue that on the job training being complementary to formal education is the reason for this pattern using a search and matching model with endogenous separations we show that investments in match specific human capital reduce incentives to separate but leave the job finding rate essentially unaffected the model generates unemployment dynamics quantitatively consistent with the data finally we provide novel empirical evidence supporting the mechanism studied in the paper this article is protected by copyright all rights reserved

factor complementarity and labour market dynamics abstract we propose and estimate a dynamic stochastic general equilibrium model featuring search and matching frictions deep habits and a ces production function the model successfully replicates the cyclical properties of labour market variables in the us economy for three main reasons first two of the endogenous mechanisms of the model factor complementarity and unemployment benefits play a key role for explaining the amplification in unemployment and vacancies second deep habits have a smaller but significant role as an endogenous mechanism third capital augmenting productivity investment specific and matching efficiency innovations explain large part of the variation in labour market variables

resuscitating the wage channel in models with unemployment fluctuations higher wages all else equal translate into higher inflation more rigid wages imply a weaker response of inflation to shocks this view of the wage channel is deeply entrenched in central banks views and models of their economy in this paper we present a model with equilibrium unemployment which features three distinctive properties first using a search and matching model with right to manage wage bargaining a proper wage channel obtains second accounting for fixed costs associated with maintaining an existing job greatly magnifies profit fluctuations for any given degree of wage fluctuations which allows the model to reproduce the fluctuations of unemployment over the business cycle and third the model implies a reasonably low elasticity of steady state unemployment with respect to changes in benefits the calibration of the model implies low profits but does not require a small gap between the value of working and the value of unemployment for the worker

work incentive effects of taxing unemployment benefits before 1979 unemployment insurance ui benefits were not treated as taxable income in the united states several economists criticized this policy on the ground that not taxing ui benefits while taxing earned income allegedly encourages unemployed persons to conduct longer than socially optimal job searches since 1979 however ui benefits received by persons in higher income families have been subject to income tax this paper investigates whether the introduction of benefit taxation has had the predicted effect of reducing unemployment duration the study uses data on a sample of persons that filed for ui in 1978 or 1979 to examine whether high income claimants collected benefits for shorter periods after the tax change than they did before benefits became taxable as part of the empirical analysis the paper develops a generalization of the weibull distribution and applies a limited dependentvariable technique for this distribution similar to the tobit technique for the normal distribution despite some variation in the results from different model specifications the analysis presents persuasive evidence of a tax effect on unemployment duration the 1979 policy change is estimated to have reduced average compensated unemployment duration among the sampled high income claimants by about one week

labour policy instruments and the cyclical behaviour of vacancies and unemployment the standard mortensen pissarides mp model cannot match the observed elasticity of vacancies and unemployment in the data this paper shows that by introducing labour policy instruments the original mp model can replicate the observed fluctuations in unemployment and job vacancies in response to shocks these instruments reduce the benefit of forming a match thereby increasing the impact that shocks have on firms incentives to post vacancies and workers to accept job offers additionally the analysis shows that the design of labour policy instruments e g whether taxation is progressive or regressive has non trivial consequences on the model s performance

a quantitative analysis of unemployment benefit extensions abstract extensions of unemployment insurance ui benefits have been implemented in response to the great recession this paper measures the effect of these extensions on the unemployment rate using a calibrated structural model featuring job search and consumption saving decisions skill depreciation and ui eligibility the ongoing ui benefit extensions are found to have raised the unemployment rate by 1 4 percentage points which is about 30 of the observed increase since 2007 moreover the contribution of the ui benefit extensions to the elevated unemployment rate increased during 2009 2011 while the number of vacancies recovered the successive extensions kept search intensity down

payroll taxes social insurance and business cycles payroll taxes represent a major distortionary influence of governments on labor markets this paper examines the role of time varying payroll taxes and the social safety net for cyclical fluctuations in a nonmonetary economy with labor market frictions and unemployment insurance when the latter is only imperfectly related to search effort a balanced social insurance budget induces countercyclical payroll taxation renders gross wages more rigid over the cycle and strengthens the model s endogenous propagation mechanism for conventional calibrations the model generates a negatively sloped beveridge curve and countercyclical unemployment as well as substantial volatility and persistence of vacancies and unemployment

pools and streams a stochastic process model of applied research abstract applied research is often viewed as a process of testing ideas drawn from a pool of candidate innovations this model is formalized for the case in which the pool of ideas is continually replenished through basic research the intensity of applied research is determined by the equilibrium of an n person non cooperative game where players choose dynamic strategies for exploiting the pool the presence of a pool cannot be detected in a stationary state but when the number of applied researchers is finite transient responses to exogenous shifts in basic research policy may reveal the pool s existence

do labor market institutions matter for business cycles using panel data of 19 oecd countries observed over 40 years and data on specific labor market reform episodes we conclude that labor market institutions matter for business cycle fluctuations spearman partial rank correlations reveal that more flexible institutions are associated with lower business cycle volatility turning to the analysis of reform episodes wage bargaining reforms increase the correlation of the real wage with labor productivity and the volatility of unemployment employment protection reforms increase the volatility of employment and decrease the correlation of the real wage with labor productivity reforms reducing replacement rates make labor productivity more procyclical

business cycles unemployment insurance and the calibration of matching models this paper theoretically and empirically documents a puzzle that arises when an rbc economy with a job matching function is used to model unemployment the standard model can generate sufficiently large cyclical fluctuations in unemployment or a sufficiently small response of unemployment to labor market policies but it cannot do both variable search and separation finite ui benefit duration efficiency wages and capital all fail to resolve this puzzle however either sticky wages or match specific productivity shocks can improve the model s performance by making the firm s flow of surplus more procyclical which makes hiring more procyclical too

monetary policy trend inflation and unemployment volatility the literature has long agreed that the dmp model after diamond 1982 mortensen 1982 pissarides 1985 with search and matching frictions in the labor market can deliver large volatilities in labor market quantities consistent with empirical data only if there is at least some wage stickiness i show however that the model can deliver nontrivial volatilities without wage stickiness as long as it has price dispersion and nonzero long run inflation rates i find that by keeping inflation at a positive rate monetary policy may be accountable for the large standard deviations observed on labor market variables in addition the shimer 2005 puzzle disappears under monetary policy shocks

comparative advantage and unemployment worker heterogeneity in productivity and labor supply is introduced into a matching model workers who earn high wages and work high hours are identified as those with strong market comparative advantage high rents from being employed the model is calibrated to match separation job finding and employment in the sipp data the model predicts a big drop in employment for workers with weak comparative advantage during recessions but the data show that workers with strong comparative advantage also display sizable employment fluctuations implying that aggregate employment fluctuations are not explained by the responses of workers with small rents to employment

the role of labor markets for euro area monetary policy in this paper we explore the role of labor markets for monetary policy in the euro area in a new keynesian model in which labor markets are characterized by search and matching frictions we first investigate to which extent a more flexible labor market would alter the business cycle behavior and the transmission of monetary policy we find that while a lower degree of wage rigidity makes monetary policy more effective i e a monetary policy shock transmits faster onto inflation the importance of other labor market rigidities for the transmission of shocks is rather limited second having estimated the model by bayesian techniques we analyze to which extent labor market shocks such as disturbances in the vacancy posting process shocks to the separation rate and variations in bargaining power are important determinants of business cycle fluctuations our results point primarily towards disturbances in the bargaining process as a significant contributor to inflation and output fluctuations in sum the paper supports current central bank practice which appears to put considerable effort into monitoring euro area wage dynamics and which appears to treat some of the other labor market information as less important for monetary policy

lost in transition the costs and consequences of sectoral labour adjustment this paper uses an equilibrium search and matching model to study canada s sectoral labour adjustment in 2002 2006 during an increase in global commodity prices and exchange rate appreciation i estimate economically significant adjustment costs for the aggregate economy in this episode and demonstrate that difficulty in transferring skills between jobs for individual workers can be an important contributor to these aggregate costs the analysis also demonstrates that the level of unemployment benefits impacts the economy s sectoral composition its aggregate productivity and the speed of its adjustment to shocks ce texte utilise un modele d equilibre de la recherche et de l arrimage pour etudier les ajustements sectoriels du travail au canada dans la periode 2002 2006 une periode d appreciation des prix globaux des produits de base et du taux de change j estime que les couts d ajustement sont economiquement significatifs pour l economie agregee au cours de cet episode et que la difficultea transferer les competences entre emplois pour les travailleurs individuels peut etre une source importante de ces couts agreges les analyses montrent aussi que le niveau des prestations d assurance emploi a un impact sur la composition sectorielle de l economie sur la productivite et sur la vitesse des ajustements aux chocs

deep habits and the cyclical behaviour of equilibrium unemployment and vacancies we extend the standard textbook search and matching model by introducing deep habits in consumption this assumption generates amplification in the response of labour market variables to technology shocks by producing endogenous countercyclical mark ups the cyclical fluctuations of vacancies and unemployment in our model can replicate those observed in the us data with labour market tightness being 20 times more volatile than consumption vacancies display a hump shaped response to technology shocks and the numerical simulations generate an artificial beveridge curve that is in line with the data our model preserves the assumption of fully flexible wages for new hires and the calibration is consistent with the estimated elasticity of unemployment to unemployment benefits finally we show that in contrast to models with exogenous mark up shocks the deep habits model does not require an implausible variation in the elasticity of demand to match the volatility of labour market variables and the cyclical properties of the mark up are in line with empirical evidence

the unemployment volatility puzzle is wage stickiness the answer i discuss the failure of the canonical search and matching model to match the cyclical volatility in the job finding rate i show that job creation in the model is influenced by wages in new matches i summarize microeconometric evidence and find that wages in new matches are volatile and consistent with the model s key predictions therefore explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages i discuss a modification of the model based on fixed matching costs that can increase cyclical unemployment volatility and is consistent with wage flexibility in new matches

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

worker flows job flows and unemployment in a matching model abstract standard matching models of unemployment generate far too little volatility in unemployment and vacancies relative to the variation in the shock variables shimer 2005 showed that in us data the vacancy to unemployment ratio is about 26 times more volatile than the standard model predicts he identified the flexibility of wages as the key issue and triggered a heated debate on possible improvements of the core model to accommodate these empirical facts in this paper we first document shimer s facts for the uk and find them to be qualitatively similar to us facts we then develop and calibrate a model based on the mortensen and pissarides approach that increases the volatility of the v u ratio 20 fold compared to the standard framework the key features of our model relate to the job creation decision by firms and the search options of workers we allow these to search whilst employed and firms to re advertise jobs that have been quit from this leads us to use a different job creation process whereby potential vacancies or job ideas arise at a finite rate per period over a range of idiosyncratic productivities calibrating the model to uk data we show that it delivers volatility in unemployment and vacancies much closer to though still not as large as that observed for the uk whilst retaining the standard wage determination process

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

inflation and labor market dynamics revisited abstract we demonstrate that the presence of an empirically plausible labor adjustment decision at the firm level rationalizes strategic complementarities in price setting which help explain inflation dynamics those strategic complementarities are typically assumed away in the related existing literature this motivates our revisiting of inflation and labor market dynamics

specific capital and vintage effects on the dynamics of unemployment and vacancies in a reasonably calibrated mortensen and pissarides matching model shocks to average labor productivity can account for only a small portion of the uctuations in unemployment and vacancies shimer 2005a in this paper i argue that if vintage speci c shocks rather than aggregate productivity shocks are the driving force of uctuations the model does a better job of accounting for the data i add heterogeneity in jobs matches with respect to the time

labor search and matching in macroeconomics abstract the labor search and matching model plays a growing role in macroeconomic analysis this paper provides a critical selective survey of the literature four fundamental questions are explored how are unemployment job vacancies and employment determined as equilibrium phenomena what determines worker flows and transition rates from one labor market state to another how are wages determined what role do labor market dynamics play in explaining business cycles and growth the survey describes the basic model reviews its theoretical extensions and discusses its empirical applications in macroeconomics the model has been developed against the background of difficulties with the use of the neo classical frictionless model of the labor market in macroeconomics its success includes the modelling of labor market outcomes as equilibrium phenomena the reasonable fit of the data and when inserted into business cycle models improved performance of more general macroeconomic models at the same time there is evidence against the nash solution used for wage setting and an active debate as to the ability of the model to account for some of the cyclical facts

consumer demand and the role of labour supply and durables in this article i test empirically whether intratemporal preferences between 1 nondurables and labour supply and 2 nondurables and housing are separable in doing so careful attention is paid to the potential endogeneity of the total budget labour supply and housing for housing i offer two separate solutions to the problem of correlation between house size proxied by number of rooms and unobserved heterogeneity first instrument with a children s sex composition dummy and second select on households residing in public housing the results strongly reject separability between nondurables and labour supply for nondurables and housing the results are more mixed

the replacement problem in frictional economies a near equivalence result we examine how technological change affects wage inequality and unemployment in a calibrated model of matching frictions in the labor market we distinguish between two polar cases studied in the literature a creative destruction economy where new machines enter chiefly through new matches and an upgrading economy where machines in existing matches are replaced by new machines our main results are i these two economies produce very similar quantitative outcomes and ii the total amount of wage inequality generated by frictions is very small we explain these findings in light of the fact that in the model calibrated to the us economy both unemployment and vacancy durations are very short i e the matching frictions are quantitatively minor hence the equilibrium allocations of the model are remarkably close to those of a frictionless version of our economy where firms are indifferent between upgrading and creative destruction and where every worker is paid the same market clearing wage these results are robust to the inclusion of machine specific or match specific heterogeneity into the benchmark model jel j41 j64 o33

the effect of unemployment compensation on unemployment duration in germany in west germany during the 1980s law changes cut the level of unemployment compensation for the unemployed without children and extended the duration of unemployment insurance for unemployed aged over 41 analysis of these changes using the german socioeconomic panel shows that transitions from unemployment for those under 49 were particularly responsive to extensions of unemployment insurance the implied elasticity for escapes of men to employment is similar to estimates for men in the united states suggesting that differences in the potential duration of unemployment insurance only partially explain the difference in spell lengths between germany and the united states

employment efficiency and sticky wages evidence from flows in the labor market i consider three views of the labor market in the first wages are flexible and employment follows the principle of bilateral efficiency workers never lose their jobs because of sticky wages in the second wages are sticky and inefficient layoffs do occur in the third wages are also sticky but employment governance is efficient i show that the behavior of flows in the labor market strongly favors the third view in the modern u s economy recessions do not begin with a burst of layoffs unemployment rises because jobs are hard to find not because an unusual number of people are thrown into unemployment

matching models under scrutiny an appraisal of the shimer puzzle abstract two papers have recently questioned the quantitative consistency of the search and matching model shimer has argued that a textbook matching model is unable to explain the cyclical variation of unemployment and vacancies in the us economy costain and reiter have found the existence of a trade off in the model s performance any attempt to change the calibrated values to improve the model s ability to predict the business cycle jeopardizes its predictions of the impact of unemployment benefits on unemployment in surveying the literature originating in these findings i distinguish three different avenues that have been followed to correct the model change in wage formation change in the calibration and changes in the model specification the last approach seems to achieve the best results both from a business cycle and from a microeconomic viewpoint

has the euro changed the business cycle abstract in contrast to the notion that the exchange rate regime is non neutral there is little evidence that emu has systematically changed the european business cycle in fact we find the volatility of macroeconomic variables largely unchanged before and after the introduction of the euro exceptions are a strong decline in real exchange rate volatility and a considerable increase in cross country correlations to account for this finding we develop a two country business cycle model which is able to replicate key features of european data in particular the model correctly predicts a limited effect of emu on standard business cycles statistics however further analysis reveals that the euro has changed the nature of the cycle through its impact on the transmission mechanism cross country spillovers have become relatively more domestic shocks relatively less important in accounting for economic fluctuations under emu this explains why there is little change in unconditional volatilities

re entitlement effects with duration dependent unemployment insurance in a stochastic matching equilibrium in the context of a standard equilibrium matching framework this paper considers how a duration dependent unemployment insurance ui system affects the dynamics of unemployment and wages in an economy subject to stochastic job destruction shocks it establishes that re entitlement effects induced by a finite duration ui program generate intertemporal transfers from firms that hire in future booms to firms that hire in current recessions these transfers imply a net hiring subsidy in recessions which stabilizes unemployment levels over the cycle

unemployment history and frictional wage dispersion abstract recent evidence shows that baseline search models struggle to match the observed levels of wage dispersion this paper studies a random matching search model with human capital losses during unemployment wage dispersion increases as workers accept lower wages to avoid long unemployment spells the model explains between a third and half of the observed residual wage dispersion when adding on the job search the model accounts for all of the residual wage dispersion and generates substantial dispersion even for high values of non market time the paper thus addresses the trade off between explaining frictional wage dispersion and the cyclical behavior of unemployment