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Dynamics of worker flows and vacancies: evidence from the sign restriction approach

  • Shigeru Fujita

This paper establishes robust dynamic features of the worker reallocation process in the US labor market. I use structural VARs with sign restrictions, which take the form of restricting the short-run negative relationship between vacancies and unemployment (i.e., Beveridge curve). Despite the ‘weakness’ of these restrictions, they reveal a clear, unambiguous pattern that, when unemployment increases and vacancies drop, (i) both the separation rate and gross separations rise quickly and remain persistently high, (ii) the job finding rate and vacancies drop in a hump‐shaped manner, and (iii) gross hires respond little initially, but eventually rise. These results point to the importance of job loss in understanding US labor market dynamics. This pattern also holds with respect to different kinds of shocks that induce the same Beveridge curve relationship. This paper also considers the ‘disaggregate model’, which uses data disaggregated into six demographic groups and incorporates transitions into and out of the labor force. I show that the separation rate continues to play a dominant role among prime‐age male workers, while, for other groups, changes in the job finding rate are more important. Copyright (C) 2009 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.1111
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 26 (2011)
Issue (Month): 1 (January/February)
Pages: 89-121

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Handle: RePEc:wly:japmet:v:26:y:2011:i:1:p:89-121
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  2. Robert E. Hall, 2005. "Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 397-407, August.
  3. Shigeru Fujita & Garey Ramey, 2006. "The cyclicality of job loss and hiring," Working Papers 06-17, Federal Reserve Bank of Philadelphia.
  4. Shigeru Fujita, 2005. "Vacancy Persistence," Computing in Economics and Finance 2005 191, Society for Computational Economics.
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  14. Juan F. Rubio-Ramirez & Daniel Waggoner & Tao Zha, 2006. "Markov-Switching Structural Vector Autoregressions: Theory and Application," Computing in Economics and Finance 2006 69, Society for Computational Economics.
  15. Shigeru Fujita & Christopher J. Nekarda & Garey Ramey, 2007. "The cyclicality of worker flows: new evidence from the SIPP," Working Papers 07-5, Federal Reserve Bank of Philadelphia.
  16. Matthew D. Shapiro & Mark W. Watson, 1988. "Sources of Business Cycle Fluctuations," Cowles Foundation Discussion Papers 870, Cowles Foundation for Research in Economics, Yale University.
  17. Oliver Jean Blanchard & Peter Diamond, 1990. "The Cyclical Behovior of the Gross Flows of U.S. Workers," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 85-156.
  18. Shigeru Fujita & Garey Ramey, 2007. "Reassessing the Shimer facts," Working Papers 07-2, Federal Reserve Bank of Philadelphia.
  19. Uhlig, Harald, 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," CEPR Discussion Papers 2137, C.E.P.R. Discussion Papers.
  20. Solon, Gary, 1986. "Effects of Rotation Group Bias on Estimation of Unemployment," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 105-09, January.
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