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Hiring Freeze and Bankruptcy in Unemployment Dynamics

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  • Garibaldi, Pietro

Abstract

This paper proposes a matching model that distinguishes between job creation by existing firms and job creation by firm entrants. The paper argues that vacancy posting and job destruction on the extensive margin, i.e. from firms that enter and exit the labour market, represents a viable mechanism for understanding the cyclical properties of vacancies and unemployment. The model features both hiring freeze and bankruptcies, where the former represents a sudden shut down of vacancy posting at the firm level with labour downsizing governed by natural turnover. A bankrupt firm, conversely, shut down its vacancies and lay offs its stock of workers. Recent research in macroeconomics has shown that a calibration of the Mortensen and Pissarides matching model account for 10 percent of the cyclical variability of the vacancy unemployment ratio displayed by U.S. data. A calibration of the model that explicitly considers hiring freeze and bankruptcy can account for 20 to 35 percent of the variability displayed by the data.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5835.

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Date of creation: Sep 2006
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Handle: RePEc:cpr:ceprdp:5835

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Keywords: matching models; unemployment dynamics;

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References

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  1. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
  2. Yashiv, E., 1999. "The Determinants of Equilibrium Unemployment," Papers 36-99, Tel Aviv.
  3. Eric Bartelsman & Stefano Scarpetta & Fabiano Schivardi, 2003. "Comparative Analysis of Firm Demographics and Survival: Micro-Level Evidence for the OECD Countries," OECD Economics Department Working Papers 348, OECD Publishing.
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Cited by:
  1. Lisi, Gaetano, 2010. "The unemployment volatility puzzle: the role of the underground economy," MPRA Paper 22689, University Library of Munich, Germany.
  2. Michael W. L. Elsby & Ryan Michaels, 2008. "Marginal Jobs, Heterogeneous Firms, & Unemployment Flows," NBER Working Papers 13777, National Bureau of Economic Research, Inc.
  3. Lisi, Gaetano, 2010. "Introduzione allo studio dei modelli di "matching" del mercato del lavoro
    [Introduction to the study of matching models of unemployment]
    ," MPRA Paper 22735, University Library of Munich, Germany.
  4. Alexandre Janiak, 2010. "Structural unemployment and the regulation of product market," Documentos de Trabajo 274, Centro de Economía Aplicada, Universidad de Chile.
  5. Lisi, Gaetano, 2011. "Matching Models of Equilibrium Unemployment: An Overview," MPRA Paper 30191, University Library of Munich, Germany.

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