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Do Job Destruction Shocks Matter in the Theory of Unemployment?

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Abstract

The current DMP approach to labor markets presumes job destruction shocks are small. We relax that assumption and also allow un lled jobs, like unemployment, to evolve as a state variable. Calibrating an otherwise standard DMP framework, we identify a remarkable, (almost) perfect, fit of the empirical facts as reported in Shimer (2005, 2012). The results, how- ever, are also consistent with the insights of Davis and Haltiwanger (1992): that unemployment volatility is driven by large but infrequent job separation shocks. The approach not only provides an important synthesis of two litera- tures which, in other contexts, have appeared contradictory, it also identfies a more traditional view of the timing and progression of recessions.

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  • Coles, M & Kelishomi, AM, 2015. "Do Job Destruction Shocks Matter in the Theory of Unemployment?," Economics Discussion Papers 14462, University of Essex, Department of Economics.
  • Handle: RePEc:esx:essedp:14462
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    1. Zvi Eckstein & Ofer Setty & David Weiss, 2019. "Financial Risk And Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(2), pages 475-516, May.
    2. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1120-1155, April.
    3. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    4. Rasmus Lentz & Dale T. Mortensen, 2008. "An Empirical Model of Growth Through Product Innovation," Econometrica, Econometric Society, vol. 76(6), pages 1317-1373, November.
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    7. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, February.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Do Job Destruction Shocks Matter in the Theory of Unemployment?
      by Christian Zimmermann in NEP-DGE blog on 2016-02-20 03:01:08

    Citations

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    Cited by:

    1. Niklas Engbom, 2019. "Application Cycles," 2019 Meeting Papers 1170, Society for Economic Dynamics.
    2. Robert E. Hall & Marianna Kudlyak, 2021. "Why Has the US Economy Recovered So Consistently from Every Recession in the Past 70 Years?," NBER Chapters, in: NBER Macroeconomics Annual 2021, volume 36, National Bureau of Economic Research, Inc.
    3. Pawel Krolikowski & Kurt Graden Lunsford, 2020. "Advance Layoff Notices and Labor Market Forecasting," Working Papers 202003, Federal Reserve Bank of Cleveland.
    4. Ellington, Michael & Martin, Chris & Wang, Bingsong, 2019. "Search Frictions and Evolving Labour Market Dynamics," The Warwick Economics Research Paper Series (TWERPS) 1195, University of Warwick, Department of Economics.
    5. Mercan, Yusuf & Schoefer, Benjamin & Sedlacek, Petr, 2020. "A Congestion Theory of Unemployment Fluctuations," CEPR Discussion Papers 15500, C.E.P.R. Discussion Papers.
    6. Christian Haefke & Michael Reiter, 2020. "Long Live the Vacancy," Working Papers 20200054, New York University Abu Dhabi, Department of Social Science, revised Sep 2020.
    7. Luis Guimaraes & Pedro Mazeda Gil, 2019. "Explaining the labor share: automation vs labor market institutions," Economics Working Papers 19-01, Queen's Management School, Queen's University Belfast.
    8. Haefke, Christian & Reiter, Michael, 2020. "Long Live the Vacancy," IHS Working Paper Series 22, Institute for Advanced Studies.
    9. Mercan, Yusuf & Schoefer, Benjamin & Sedlacek, Petr, 2020. "A Congestion Theory of Unemployment Fluctuations," CEPR Discussion Papers 15500, C.E.P.R. Discussion Papers.
    10. Den Haan, W. & Freund, L. B. & Rendahl, P., 2020. "Volatile Hiring: Uncertainty in Search and Matching Models," Cambridge Working Papers in Economics 20125, Faculty of Economics, University of Cambridge.
    11. Haefke, Christian & Reiter, Michael, 2020. "Long Live the Vacancy," GLO Discussion Paper Series 654, Global Labor Organization (GLO).
    12. Mercan, Yusuf & Schoefer, Benjamin, 2019. "Jobs and Matches: Quits, Replacement Hiring, and Vacancy Chains," CEPR Discussion Papers 14208, C.E.P.R. Discussion Papers.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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