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Reassessing the Shimer facts

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  • Shigeru Fujita
  • Garey Ramey

Abstract

In a recent influential paper, Shimer uses CPS duration and gross flow data to draw two conclusions: (1) separation rates are nearly acyclic; and (2) separation rates contribute little to the variability of unemployment. In this paper the authors assert that Shimer's analysis is problematic, for two reasons: (1) cyclicality is not evaluated systematically; and (2) the measured contributions to unemployment variability do not actually decompose total unemployment variability. The authors address these problems by applying a standard statistical measure of business cycle comovement, and constructing a precise decomposition of unemployment variability. Their results disconfirm Shimer's conclusions. More specifically, separation rates are highly countercyclical under various business cycle measures and filtering methods. The authors also find that fluctuations in separation rates make a substantial contribution to overall unemployment variability.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 07-2.

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Date of creation: 2007
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Handle: RePEc:fip:fedpwp:07-2

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  1. Haefke, Christian & Reiter, Michael, 2006. "Endogenous Labor Market Participation and the Business Cycle," IZA Discussion Papers 2029, Institute for the Study of Labor (IZA).
  2. King, R.G. & Rebelo, S.T., 1989. "Low Frequency Filtering And Real Business Cycles," RCER Working Papers 205, University of Rochester - Center for Economic Research (RCER).
  3. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
  4. Mark Gertler & Antonella Trigari, 2006. "Unemployment Fluctuations With Staggered Nash Wage Bargaining," NBER Working Papers 12498, National Bureau of Economic Research, Inc.
  5. Gary Solon & Ryan Michaels & Michael W. L. Elsby, 2009. "The Ins and Outs of Cyclical Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 84-110, January.
  6. Robert E. Hall, 2005. "Job Loss, Job Finding, and Unemployment in the U.S. Economy Over the Past Fifty Years," NBER Working Papers 11678, National Bureau of Economic Research, Inc.
  7. Julio J. Rotemberg, 2006. "Cyclical wages in a search-and-bargaining model with large firms," Proceedings, Federal Reserve Bank of San Francisco.
  8. Ramey, Garey & Shigeru Fujita, 2006. "The Cyclicality of Job Loss and Hiring," University of California at San Diego, Economics Working Paper Series qt4nz8p839, Department of Economics, UC San Diego.
  9. Ben-David Nissim, 2005. "The separation rate cannot be exogenous," Applied Economics Letters, Taylor & Francis Journals, vol. 12(15), pages 949-951.
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