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On the Cyclicality of Labor Market Mismatch and Aggregate Employment Flows

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Author Info
Kenneth Beauchemin
Murat Tasci
Abstract

This paper combines a discrete-time dynamic general equilibrium articulation of the standard model of labor market search with observed U.S. time series measures on employment, vacancies, and aggregate output to uncover the cyclical properties of three unobserved forcing variables that comprise the exogenous state of the aggregate labor market: labor productivity, the rate of job separation, and the allocational efficiency of the labor market. We posit the latter variable to be inversely related to the degree of mismatch in the pool of searching workers and vacancies, given numbers of each, and identify its movements as scalar shifts in the standard matching function. Given that the model exactly reconciles observed net employment changes, our procedure also implies measured time series of the flows into and out of employment. We find that labor productivity, the job separation rate and allocational efficiency are all procyclical with the latter two highly variable. These cyclical patterns lead to procyclical implied gross employment flows, thereby concentrating labor force reallocation during booms. We discuss the implications for conventional views of business cycle fluctuations and for the standard search theories of labor market behavior.

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Paper provided by University at Albany, SUNY, Department of Economics in its series Discussion Papers with number 05-01.

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Date of creation: 2005
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Handle: RePEc:nya:albaec:05-01

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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
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  2. van Ours, Jan & Ridder, Geert, 1992. "Vacancies and the Recruitment of New Employees," Journal of Labor Economics, University of Chicago Press, vol. 10(2), pages 138-55, April. [Downloadable!] (restricted)
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  5. Wouter J. den Haan & Garey Ramey & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June. [Downloadable!] (restricted)
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  6. Lee, Bong-Soo & Ingram, Beth Fisher, 1991. "Simulation estimation of time-series models," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 197-205, February. [Downloadable!] (restricted)
  7. Robert Shimer, 2003. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies: Evidence and Theory," NBER Working Papers 9536, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Olivier Jean Blanchard & Peter Diamond, 1990. "The Beveridge Curve," NBER Reprints 1405, National Bureau of Economic Research, Inc.
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  9. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 397-415, July. [Downloadable!] (restricted)
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  10. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August. [Downloadable!] (restricted)
  11. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
  12. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Business cycle accounting," Working Papers 625, Federal Reserve Bank of Minneapolis.
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  13. Olivier Jean Blanchard & Peter Diamond, 1991. "The Cyclical Behavior of the Gross Flows of U.S. Workers," NBER Reprints 1582, National Bureau of Economic Research, Inc.
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  14. Michael J. Pries, 2004. "Persistence of Employment Fluctuations: A Model of Recurring Job Loss," Review of Economic Studies, Blackwell Publishing, vol. 71(1), pages 193-215, 01. [Downloadable!] (restricted)
  15. Cole, Harold L & Rogerson, Richard, 1999. "Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 933-59, November.
  16. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November. [Downloadable!] (restricted)
  17. Davis, Steven J & Haltiwanger, John C, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 819-63, August. [Downloadable!] (restricted)
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  18. Barbara Petrongolo & Christopher A. Pissarides, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June. [Downloadable!] (restricted)
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  19. Abowd, John M & Zellner, Arnold, 1985. "Estimating Gross Labor-Force Flows," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 254-83, June.
  20. Abraham, Katharine G & Katz, Lawrence F, 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 507-22, June. [Downloadable!] (restricted)
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  21. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-68, December. [Downloadable!] (restricted)
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