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Do job destruction shocks matter in the theory of unemployment?
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Coles, Melvyn G. and Kelishomi, Ali Moghaddasi (2018) Do job destruction shocks matter in the theory of unemployment? American Economic Journal: Macroeconomics, 10 (3). pp. 118-136. doi:10.1257/mac.20150040
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Official URL: https://doi.org/10.1257/mac.20150040
Abstract
Because the data show that market tightness is not orthogonal to unemployment, this paper identifies the many empirical difficulties caused by adopting the free entry of vacancies assumption in the Diamond-Mortensen-Pissarides (DMP) framework. Relaxing the free entry assumption and using Simulated Method of Moments (SMM) finds the vacancy creation process is less than infinitely elastic. Because a recession-leading job separation shock then causes vacancies to fall as unemployment increases, the ad hoc restriction to zero job separation shocks (to generate Beveridge curve dynamics) becomes redundant. In contrast to standard arguments, the calibrated model finds the job separation process drives unemployment volatility over the cycle.
| Item Type: | Journal Article | ||||||
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| Subjects: | H Social Sciences > HD Industries. Land use. Labor | ||||||
| Divisions: | Faculty of Social Sciences > Economics | ||||||
| Library of Congress Subject Headings (LCSH): | Unemployment -- Mathematical models, Job vacancies, Labor productivity | ||||||
| Journal or Publication Title: | American Economic Journal: Macroeconomics | ||||||
| Publisher: | American Economic Association | ||||||
| ISSN: | 1945-7707 | ||||||
| Official Date: | 31 July 2018 | ||||||
| Dates: |
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| Volume: | 10 | ||||||
| Number: | 3 | ||||||
| Page Range: | pp. 118-136 | ||||||
| DOI: | 10.1257/mac.20150040 | ||||||
| Status: | Peer Reviewed | ||||||
| Publication Status: | Published | ||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||
| RIOXX Funder/Project Grant: |
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