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Persistence of Employment Fluctuations: A Model of Recurring Job Loss

  • Michael J. Pries

Standard models of employment fluctuations cannot reconcile the unemployment rate's remarkable persistence with the high job-finding rates found in worker flows data. A matching model emphasizing high hazard rates among newly formed firm-worker matches can resolve this shortcoming. In the model, matches are experience goods; consequently, newly employed workers face higher hazard rates. Following a job loss, workers may experience several short-lived jobs before finding stable employment. At an aggregate level, an initial burst of job loss precipitates a steady flow of recurring job loss. A simulation shows that this recurring job loss can account for the fact that the unemployment rate remains elevated for as much as 4 or 5 years following an initial jump. Copyright 2004, Wiley-Blackwell.

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Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 71 (2004)
Issue (Month): 1 ()
Pages: 193-215

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Handle: RePEc:oup:restud:v:71:y:2004:i:1:p:193-215
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