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Hiring Freeze and Bankruptcy in Unemployment Dynamics

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  • Pietro Garibaldi

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 potentially 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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File URL: http://repec.org/sed2006/up.14156.1139348757.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 227.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:227

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Keywords: unemployment dynamics; matching models;

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References

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  1. Eran Yashiv, 2000. "The Determinants of Equilibrium Unemployment," American Economic Review, American Economic Association, vol. 90(5), pages 1297-1322, December.
  2. 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.
  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. "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.
  2. Lisi, Gaetano, 2011. "Matching Models of Equilibrium Unemployment: An Overview," MPRA Paper 30191, University Library of Munich, Germany.
  3. Lisi, Gaetano, 2010. "The unemployment volatility puzzle: the role of the underground economy," MPRA Paper 22689, University Library of Munich, Germany.
  4. Michael W. L. Elsby, 2008. "Marginal Jobs, Heterogeneous Firms, & Unemployment Flows," NBER Working Papers 13777, National Bureau of Economic Research, Inc.
  5. Alexandre Janiak, 2010. "Structural unemployment and the regulation of product market," Documentos de Trabajo 274, Centro de Economía Aplicada, Universidad de Chile.

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