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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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  1. 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.
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  7. Shigeru Fujita & Garey Ramey, 2006. "The cyclicality of job loss and hiring," Working Papers 06-17, Federal Reserve Bank of Philadelphia.
  8. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-90, September.
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  18. 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, June.
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  20. Cooley, Thomas F. & Quadrini, Vincenzo, 1999. "A neoclassical model of the Phillips curve relation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 165-193, October.
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  23. Shigeru Fujita & Garey Ramey, 2007. "Reassessing the Shimer facts," Working Papers 07-2, Federal Reserve Bank of Philadelphia.
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  25. Katharine G. Abraham, 1987. "Help-Wanted Advertising, Job Vacancies, and Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1), pages 207-248.
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