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Labor Market Dynamics and the Business Cycle: Structural Evidence for the United States

  • Morten O. Ravn
  • Saverio Simonelli

We use a 12-dimensional VAR to examine the dynamic effects on the labor market of four structural technology and policy shocks. For each shock, we examine the dynamic e®ects on the labor market, the importance of the shock for labor market volatility, and the comovement between labor market variables and other key aggregate variables in response to the shock. We document that labor market indicators display "hump-shaped" responses to the identified shocks. Technology shocks and monetary policy shocks are important for labor market volatility but the ranking of their importance is sensitive to the VAR specfication. The conditional correlations at business cycle frequencies are similar in response to the four shocks apart from the correlations between hours worked, labor productivity and real wages. To account for the unconditional correlations between these variables, a mixture of shocks are required.

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Paper provided by European University Institute in its series Economics Working Papers with number ECO2007/13.

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Date of creation: 2007
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Handle: RePEc:eui:euiwps:eco2007/13
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