State dependence in labor market fluctuations

Arbeitspapier

This paper documents state dependence in labor market fluctuations. Using aThreshold Vector Autoregression model (TVAR), we establish that the unemployment rate, the job separation rate, and the job finding rate exhibit a larger response to productivity shocks during periods with low aggregate productivity. A Diamond-Mortensen-Pissarides model with endogenous job separation and on-the-job search replicates these empirical regularities well.We calibrate the model to match the standard deviation of the job-transition rates explained by productivity shocks in the TVAR,and show that the model explains 88 percent of the state dependence in the unemployment rate, 76 percent for the separation rate and 36 percent for the job finding rate.The key channel underpinning state dependence in both job separation and job finding rates is the interaction of the firm's reservation productivity level and the distribution of match-specific idiosyncratic productivity. Results are robust across several variations to the baseline model.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Cardiff Economics Working Papers ; No. E2020/2

Classification and Topics

• Classification: Wirtschaft ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Business Fluctuations; Cycles ; Unemployment: Models, Duration, Incidence, and Job Search ; Bayesian Analysis: General
• Subject: Search and Matching Models ; State Dependence in Business Cycles ; Threshold Vector Autoregression

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Pizzinelli, Carlo ; Theodoridis, Konstantinos ; Zanetti, Francesco
• Event: Veröffentlichung
• (who): Cardiff University, Cardiff Business School
• (where): Cardiff
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/250312