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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

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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
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:
DateEvent
31 July 2018Published
31 July 2017Accepted
Date of first compliant deposit: 8 February 2018
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:
Project/Grant IDRIOXX Funder NameFunder ID
ES/I037628/1 [ESRC] Economic and Social Research Councilhttp://dx.doi.org/10.13039/501100000269
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