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Exogenous vs. Endogenous Separation

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  • Ramey, Garey

Abstract

This paper assesses how various approaches to modelling the separation margin a¤ect the ability of the Mortensen-Pissarides job matching model to explain key facts about the aggregate labor market. Allowing for realistic time variation in the separation rate, whether exogenous or endogenous, greatly in- creases the unemployment variability generated by the model. Speci…cations with exogenous separation rates, whether constant or time-varying, fail to pro- duce realistic volatility and productivity responsiveness of the separation rate and worker ‡ows. Speci…cations with endogenous separation rates, on the other hand, succeed along these dimensions. In addition, the endogenous separation model with on-the-job search yields a realistic Beveridge curve correlation, and it performs well in accounting for the productivity responsiveness of vacancies and market tightness. When the Hagedorn-Manovskii calibration approach is used, the behavior of the job …nding rate, vacancies and market tightness be- comes more realistic, but the volume of job-to-job transitions in the on-the-job search speci…cation is essentially zero.

Suggested Citation

  • Ramey, Garey, 2008. "Exogenous vs. Endogenous Separation," University of California at San Diego, Economics Working Paper Series qt0qb196qd, Department of Economics, UC San Diego.
    • Handle: RePEc:cdl:ucsdec:qt0qb196qd
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    Cited by:

    1. Di Pace, F. & Faccini, R., 2012. "Deep habits and the cyclical behaviour of equilibrium unemployment and vacancies," Journal of Economic Dynamics and Control, Elsevier, vol. 36(2), pages 183-200.
    2. Fujita, Shigeru, 2018. "Declining labor turnover and turbulence," Journal of Monetary Economics, Elsevier, vol. 99(C), pages 1-19.
    3. Miyamoto Hiroaki, 2011. "Cyclical Behavior of a Matching Model with Capital Investment," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-25, January.
    4. Menzio, Guido & Moen, Espen R., 2010. "Worker replacement," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 623-636, September.
    5. Faccini, Renato & Ortigueira, Salvador, 2010. "Labor-market volatility in the search-and-matching model: The role of investment-specific technology shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 34(8), pages 1509-1527, August.
    6. Wesselbaum, Dennis, 2011. "Sector-specific productivity shocks in a matching model," Economic Modelling, Elsevier, vol. 28(6), pages 2674-2682.
    7. Shigeru Fujita, 2011. "Dynamics of worker flows and vacancies: evidence from the sign restriction approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(1), pages 89-121, January/F.
    8. Tortorice, Daniel L., 2013. "Endogenous separation, wage rigidity and the dynamics of unemployment," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 179-191.
    9. Michael W. L. Elsby & Bart Hobijn & Ayşegül Şahin, 2013. "Unemployment Dynamics in the OECD," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 530-548, May.
    10. Guido Menzio & Shouyong Shi, 2011. "Efficient Search on the Job and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 468-510.
    11. Beauchemin, Kenneth & Tasci, Murat, 2014. "Diagnosing Labor Market Search Models: A Multiple-Shock Approach," Macroeconomic Dynamics, Cambridge University Press, vol. 18(3), pages 548-572, April.
    12. Isabel Cairó & Tomaz Cajner, 2018. "Human Capital and Unemployment Dynamics: Why More Educated Workers Enjoy Greater Employment Stability," Economic Journal, Royal Economic Society, vol. 128(609), pages 652-682, March.
    13. van Roye, Björn & Wesselbaum, Dennis, 2009. "Capital, endogenous separations, and the business cycle," Kiel Working Papers 1561, Kiel Institute for the World Economy (IfW Kiel).
    14. Dennis Wesselbaum, 2015. "Firing costs in a business cycle model with endogenous separations," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 42(3), pages 499-518, August.
    15. Jung, Philip & Kuhn, Moritz, 2011. "Labor Market Rigidity and Business Cycle Volatility," MPRA Paper 48946, University Library of Munich, Germany.
    16. Moritz Kuhn & Philip Jung, 2010. "Labor market rigidity and the transmission of business cycle shocks," 2010 Meeting Papers 595, Society for Economic Dynamics.
    17. Wesselbaum, Dennis, 2009. "Firing costs in a New Keynesian model with endogenous separations," Kiel Working Papers 1550, Kiel Institute for the World Economy (IfW Kiel).

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