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Labor-market volatility in the search-and-matching model: The role of investment-specific technology shocks

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  • Faccini, Renato
  • Ortigueira, Salvador

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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 34 (2010)
Issue (Month): 8 (August)
Pages: 1509-1527

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:8:p:1509-1527

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Keywords: Search and matching Labor market fluctuations Investment-specific technology Adjustment costs Factor adjustment dynamics;

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References

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Citations

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Cited by:
  1. Abbritti, Mirko & Fahr, Stephan, 2011. "Macroeconomic implications of downward wage rigidities," Working Paper Series 1321, European Central Bank.
  2. João Miguel Ejarque, 2009. "A Search Model with a Quasi-Network," Discussion Papers 10-23, University of Copenhagen. Department of Economics, revised Sep 2010.
  3. Leo Kaas & Philipp Kircher, 2011. "Efficient Firm Dynamics in a Frictional Labor Market," Working Paper Series of the Department of Economics, University of Konstanz 2011-01, Department of Economics, University of Konstanz.
  4. Auray, Stephane & de Blas, Beatriz, 2011. "Investment, Matching and Persistence in a modified Cash-in-Advance Economy," Working Papers in Economic Theory 2011/10, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  5. João Miguel Ejarque, 2010. "A search model with a quasi network," 2010 Meeting Papers 597, Society for Economic Dynamics.
  6. Mumtaz, Haroon & Zanetti, Francesco, 2012. "Neutral technology shocks and employment dynamics: results based on an RBC identification scheme," Bank of England working papers 453, Bank of England.
  7. Di Pace, F. & Faccini, R., 2012. "Deep habits and the cyclical behaviour of equilibrium unemployment and vacancies," Journal of Economic Dynamics and Control, Elsevier, vol. 36(2), pages 183-200.
  8. Toledo Manuel & Silva José I, 2010. "Investment-Specific Shocks and Cyclical Fluctuations in a Frictional Labor Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-39, April.
  9. Jo�o Miguel Ejarque, 2009. "A Search Model with a Quasi-Network," Economics Discussion Papers 665, University of Essex, Department of Economics.

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