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Idiosyncratic Risk and Aggregate Employment Dynamics

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Author Info
Jeffrey R. Campbell (Federal Reserve Bank of Chicago)
Jonas D. M. Fisher (Federal Reserve Bank of Chicago)

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Abstract

This paper studies how idiosyncratic productivity risk impacts aggregate employment dynamics when there is a trade-off between workers' productivity and costs of job creation and destruction. In our analysis, increasing idiosyncratic risk induces a producer to move workers out of structured jobs that are costly to create and destroy and towards less-productive but more-flexible unstructured positions. This substitution leaves the producer's total employment more responsive to both idiosyncratic and aggregate disturbances. If all of an industry's producers respond to heightened idiosyncratic risk in this way, then industry-wide employment can respond more to a given aggregate shock. We apply this insight to connect differences between young and old manufacturing plants' aggregate employment dynamics with their corresponding differences in idiosyncratic variability. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/S1094-2025(03)00057-7
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Publisher Info
Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 7 (2004)
Issue (Month): 2 (April)
Pages: 331-353
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Handle: RePEc:red:issued:v:7:y:2004:i:2:p:331-353

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Related research
Keywords: Idiosyncratic Risk; Plant Life Cycle; Employment Dynamics; Adjustment Costs;

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Find related papers by JEL classification:
E00 - Macroeconomics and Monetary Economics - - General - - - General
L00 - Industrial Organization - - General - - - General
J00 - Labor and Demographic Economics - - General - - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
  2. Beaulieu, J Joseph & MacKie-Mason, Jeffrey K & Miron, Jeffrey A, 1992. "Why Do Countries and Industries with Large Seasonal Cycles also Have Large Business Cycles?," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 621-56, May. [Downloadable!] (restricted)
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  7. Comin, D., 2000. "An Uncertainty-Driven Theory of the Productivity Slowdown: Manufacturing," Working Papers 00-16, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  16. Bertola, G. & Caballero, R.J., 1990. "Kinked Adjustment Costs And Aggregate Dynamics," Discussion Papers 1990_20, Columbia University, Department of Economics.
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  20. Jeffrey R. Campbell & Jonas D. M. Fisher, 2000. "Aggregate Employment Fluctuations with Microeconomic Asymmetries," American Economic Review, American Economic Association, vol. 90(5), pages 1323-1345, December. [Downloadable!] (restricted)
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  21. Hamermesh, Daniel S. & Hassink, Wolter H.J. & Ours, Jan C. van, 1994. "Job turnover and labor turnover : a taxonomy of employment dynamics," Serie Research Memoranda 0050, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
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  23. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
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  27. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Min Ouyang, 2005. "The Scarring Effect of Recessions," Working Papers 050609, University of California-Irvine, Department of Economics. [Downloadable!]
    Other versions:
  2. Øivind A. Nilsen, Arvid Raknerud, Marina Rybalka and Terje Skjerpen, 2005. "Lumpy Investments, Factor Adjustments and Productivity," Discussion Papers 441, Research Department of Statistics Norway. [Downloadable!]
  3. Eugenio P. Pinto, 2009. "Firms' relative sensitivity to aggregate shocks and the dynamics of gross job flows," Finance and Economics Discussion Series 2009-02, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  4. Simon Gilchrist & John C. Williams, 2005. "Investment, Capacity, and Uncertainty: A Putty-Clay Approach," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 1-27, January. [Downloadable!] (restricted)
    Other versions:
  5. Jeffrey R. Campbell & Zvi Hercowitz, 2005. "The Role of Collateralized Household Debt in Macroeconomic Stabilization," NBER Working Papers 11330, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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