Matching frictions, unemployment dynamics and the cost of business cycles
AbstractWe investigate the welfare cost of business cycles implied by matching frictions. First, using the reduced-form of the matching model, we show that job finding rate fluctuations generate intrinsically a non-linear effect on unemployment: positive shocks reduce unemployment less than negative shocks increase it. For the observed process of the job finding rate in the US economy, this intrinsic asymmetry increases average unemployment, which leads to substantial business cycles costs. Moreover, the structural matching model embeds other non-linearities, which alter the average job finding rate and consequently the welfare cost of business cycles. Our theory suggests to subsidizing employment in order to dampen the impact of the job finding rate fluctuations on welfare.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00516832.
Date of creation: 01 Oct 2010
Date of revision:
Publication status: Published, Review of Economic Dynamics, 2010, 13, 4, 759-779
Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00516832
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/
Business cycle costs; Unemployment dynamics; Matching;
Other versions of this item:
- Jean-Olivier Hairault & Francois Langot & Sophie Osotimehin, 2010. "Matching frictions, unemployment dynamics and the cost of business cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(4), pages 759-779, October.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-25 (All new papers)
- NEP-BEC-2010-09-25 (Business Economics)
- NEP-CBA-2010-09-25 (Central Banking)
- NEP-DGE-2010-09-25 (Dynamic General Equilibrium)
- NEP-LAB-2010-09-25 (Labour Economics)
- NEP-MAC-2010-09-25 (Macroeconomics)
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.:
- John Kennan, 2006.
"Private Information, Wage Bargaining and Employment Fluctuations,"
NBER Working Papers
11967, National Bureau of Economic Research, Inc.
- John Kennan, 2010. "Private Information, Wage Bargaining and Employment Fluctuations," Review of Economic Studies, Oxford University Press, vol. 77(2), pages 633-664.
- John Kennan, 2005. "Private Information, Wage Bargaining and Employment Fluctuations," 2005 Meeting Papers 555, Society for Economic Dynamics.
- Olivier Blanchard & Jordi Galí, 2010.
"Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 2(2), pages 1-30, April.
- Olivier Blanchard & Jordi Gali, 2008. "Labor Markets and Monetary Policy: A New-Keynesian Model with Unemployment," NBER Working Papers 13897, National Bureau of Economic Research, Inc.
- Blanchard, Olivier J & Galí, Jordi, 2008. "Labour Markets and Monetary Policy: A New Keynesian Model with Unemployment," CEPR Discussion Papers 6765, C.E.P.R. Discussion Papers.
- Olivier Blanchard & Jordi Galí, 2006. "Labor markets and monetary policy: A new-Keynesian model with unemployement," Economics Working Papers 1076, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2008.
- Garey Ramey & Valerie A. Ramey, 1991. "Technology Commitment and the Cost of Economic Fluctuations," NBER Working Papers 3755, National Bureau of Economic Research, Inc.
- Andrea Bassanini & Romain Duval, 2006.
"Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions,"
OECD Economics Department Working Papers
486, OECD Publishing.
- Andrea Bassanini & Romain Duval, 2006. "Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions," OECD Social, Employment and Migration Working Papers 35, OECD Publishing.
- Thomas J. Sargent & Lars Ljungqvist & Sagiri Kitao, 2009. "A Life Cycle Model of Trans-Atlantic Employment Experiences," 2009 Meeting Papers 914, Society for Economic Dynamics.
- Philip Jung & Keith Kuester, 2008. "The (un)importance of unemployment fluctuations for welfare," Working Papers 08-31, Federal Reserve Bank of Philadelphia.
- Sophie Osotimehin & François Langot & Jean-Olivier Hairault, 2009.
"Unemployment dynamics and the cost of business cycles,"
2009 Meeting Papers
492, Society for Economic Dynamics.
- Hairault, Jean-Olivier & Langot, François & Osotimehin, Sophie, 2008. "Unemployment Dynamics and the Cost of Business Cycles," IZA Discussion Papers 3840, Institute for the Study of Labor (IZA).
- Kremer, Jana & Stähler, Nikolai, 2013.
"Structural and cyclical effects of tax progression,"
15/2013, Deutsche Bundesbank, Research Centre.
- Jana Kremer & Nikolai Stähler, 2013. "Structural and Cyclical Effects of Tax Progression," IAAEU Discussion Papers 201305, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
- Guido Ascari & Tiziano Ropele, 2009.
"Disinflation in a DSGE Perspective: Sacrifice Ratio or Welfare Gain Ratio?,"
Kiel Working Papers
1499, Kiel Institute for the World Economy.
- Ascari, Guido & Ropele, Tiziano, 2012. "Disinflation in a DSGE perspective: Sacrifice ratio or welfare gain ratio?," Journal of Economic Dynamics and Control, Elsevier, vol. 36(2), pages 169-182.
- Guido Ascari & Tiziano Ropele, 2010. "Disinflation in a DSGE Perspective: Sacrifice Ratio or Welfare Gain Ratio?," Quaderni di Dipartimento 111, University of Pavia, Department of Economics and Quantitative Methods.
- Jung, Philip & Kuester, Keith, 2011. "The (un)importance of unemployment fluctuations for the welfare cost of business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 35(10), pages 1744-1768, October.
- Ekkehard Ernst & Uma Rani, 2011. "Understanding unemployment flows," Oxford Review of Economic Policy, Oxford University Press, vol. 27(2), pages 268-294.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).
If references are entirely missing, you can add them using this form.