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They Are Even Larger! More (on) Puzzling Labor Market Volatilities

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Author Info

  • Gartner, Hermann

    ()
    (Institute for Employment Research (IAB), Nuremberg)

  • Merkl, Christian

    ()
    (University of Erlangen-Nuremberg)

  • Rothe, Thomas

    ()
    (Institute for Employment Research (IAB), Nuremberg)

Abstract

This paper shows that the German labor market is more volatile than the US labor market. Specifically, the volatility of the cyclical component of several labor market variables (e.g., the job-finding rate, labor market tightness, and job vacancies) divided by the volatility of labor productivity is roughly twice as large as in the United States. We derive and simulate a simple dynamic labor market model with heterogeneous worker productivity. This model is able to explain the higher German labor market volatilities by a longer expected job duration.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4403.

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Length: 31 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4403

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Keywords: job-finding rate; labor market volatilities; unemployment; worker flows; vacancies; market tightness;

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References

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  1. Robert E. Hall & Paul R. Milgrom, 2005. "The Limited Influence of Unemployment on the Wage Bargain," NBER Working Papers 11245, National Bureau of Economic Research, Inc.
  2. Kai Christoffel & Keith Kuester & Tobias Linzert, 2009. "The role of labor markets for Euro area monetary policy," Working Papers 09-1, Federal Reserve Bank of Philadelphia.
  3. Lechthaler, Wolfgang & Merkl, Christian & Snower, Dennis J., 2008. "Monetary Persistence and the Labor Market: A New Perspective," IZA Discussion Papers 3513, Institute for the Study of Labor (IZA).
  4. Hagedorn, Marcus & Manovskii, Iourii, 2008. "The cyclical behavior of equilibrium unemployment and vacancies revisited," Working Paper Series, European Central Bank 0853, European Central Bank.
  5. James S. Costain & Michael Reiter, 2003. "Business cycles, unemployment insurance and the calibration of matching models," Economics Working Papers 872, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2006.
  6. Christian Merkl & Tom Schmitz, 2009. "Macroeconomic Volatilities and the Labor Market: First Results from the Euro Experiment," Kiel Working Papers 1511, Kiel Institute for the World Economy.
  7. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 25-49, March.
  8. Brown, Alessio J. G. & Merkl, Christian & Snower, Dennis J., 2010. "An Incentive Theory of Matching," Open Access Publications from Kiel Institute for the World Economy, Kiel Institute for the World Economy (IfW) 37391, Kiel Institute for the World Economy (IfW).
  9. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2409, C.E.P.R. Discussion Papers.
  10. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis And The European Unemployment Problem," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
  11. Shigeru Fujita & Garey Ramey, 2006. "The Dynamic Beveridge Curve," 2006 Meeting Papers, Society for Economic Dynamics 239, Society for Economic Dynamics.
  12. Merkl, Christian & Snower, Dennis J., 2008. "Escaping the unemployment trap: The case of East Germany," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 542-556, December.
  13. Christian Haefke & Marcus Sonntag & Thijs van Rens, 2009. "Wage Rigidity and Job Creation," Kiel Working Papers 1504, Kiel Institute for the World Economy.
  14. Dennis J. Snower & Christian Merkl, 2006. "The Caring Hand that Cripples: The East German Labor Market after Reunification," American Economic Review, American Economic Association, American Economic Association, vol. 96(2), pages 375-382, May.
  15. Ronald Bachmann, 2005. "Labour Market Dynamics in Germany: Hirings, Separations, and Job-to-Job Transitions over the Business Cycle," SFB 649 Discussion Papers SFB649DP2005-045, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  16. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 50-65, March.
  17. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "Unemployment and vacancy fluctuations in the matching model: inspecting the mechanism," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Sum, pages 19-50.
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Citations

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Cited by:
  1. Brown, Alessio J G & Merkl, Christian & Snower, Dennis J., 2007. "Comparing the Effectiveness of Employment Subsidies," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6334, C.E.P.R. Discussion Papers.
  2. Kienzler, Daniel, 2012. "Long-term Unemployment over the Business Cycle, Skill Loss, and Monetary Policy," Working Papers on Finance 1205, University of St. Gallen, School of Finance.
  3. Gartner, Hermann & Merkl, Christian & Rothe, Thomas, 2012. "Sclerosis and large volatilities: Two sides of the same coin," Economics Letters, Elsevier, Elsevier, vol. 117(1), pages 106-109.
  4. Michael C. Burda & Mark Weder, 2010. "Payroll Taxes, Social Insurance and Business Cycles," School of Economics Working Papers 2010-17, University of Adelaide, School of Economics.
  5. Lechthaler, Wolfgang & Merkl, Christian & Snower, Dennis J., 2010. "Monetary persistence and the labor market: A new perspective," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(5), pages 968-983, May.
  6. Wellschmied, Felix Maximilian & Bachmann, Rüdiger & Bayer, Christian & Seth, Stefan, 2013. "Cyclicality of Job and Worker Flows: New Data and a New Set of Stylized Facts," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79874, Verein für Socialpolitik / German Economic Association.
  7. Christian Merkl & Dennis Wesselbaum, 2009. "Extensive vs. Intensive Margin in Germany and the United States: Any Differences?," Kiel Working Papers 1563, Kiel Institute for the World Economy.
  8. Moritz Kuhn & Philip Jung, 2010. "Labor market rigidity and the transmission of business cycle shocks," 2010 Meeting Papers, Society for Economic Dynamics 595, Society for Economic Dynamics.
  9. Philip, Jung & Moritz, Kuhn, 2011. "The Era of the U.S.-Europe Labor Market Divide: What can we learn?," MPRA Paper 32322, University Library of Munich, Germany.
  10. Jung, Philip & Kuhn, Moritz, 2011. "Labor Market Rigidity and Business Cycle Volatility," MPRA Paper 48946, University Library of Munich, Germany.
  11. Stüber, Heiko, 2012. "Are real entry wages rigid over the business cycle? : Empirical evidence for Germany from 1977 to 2009," IAB Discussion Paper 201206, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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