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The dynamic Beveridge curve

  • Shigeru Fujita
  • Garey Ramey

In aggregate U.S. data, exogenous shocks to labor productivity induce highly persistent and hump-shaped responses to both the vacancy-unemployment ratio and employment. The authors show that the standard version of the Mortensen-Pissarides matching model fails to replicate this dynamic pattern due to the rapid responses of vacancies. They extend the model by introducing a sunk cost for creating new job positions, motivated by the well-known fact that worker turnover exceeds job turnover. In the matching model with sunk costs, vacancies react sluggishly to shocks, leading to highly realistic dynamics

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 05-22.

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Date of creation: 2005
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Handle: RePEc:fip:fedpwp:05-22
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  1. Krause, Michael & Lubik, Thomas A., 2007. "On-the-job search and the cyclical dynamics of the labor market," Discussion Paper Series 1: Economic Studies 2007,15, Deutsche Bundesbank, Research Centre.
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  3. Aghion, Philippe & Howitt, Peter, 1994. "Growth and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 477-94, July.
  4. Dale Mortensen & Eva Nagypal, 2007. "More on Unemployment and Vacancy Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(3), pages 327-347, July.
  5. James S. Costain & Michael Reiter, 2003. "Business Cycles, Unemployment Insurance, and the Calibration of Matching Models," CESifo Working Paper Series 1008, CESifo Group Munich.
  6. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  7. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  8. Marcus Hagedorn & Iourii Manovskii, 2007. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," IEW - Working Papers 351, Institute for Empirical Research in Economics - University of Zurich.
  9. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  10. Shigeru Fujita, 2005. "Vacancy Persistence," Computing in Economics and Finance 2005 191, Society for Computational Economics.
  11. R. Jason Faberman, 2004. "Gross Job Flows over the Past Two Business Cycles: Not all 'Recoveries' are Created Equal," Working Papers 372, U.S. Bureau of Labor Statistics.
  12. Eran Yashiv, 2005. "Forward-Looking Hiring Behavior and the Dynamics of the Aggregate Labor Market," 2005 Meeting Papers 360, Society for Economic Dynamics.
  13. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
  14. Ricardo J. Caballero & Mohamad L. Hammour, 1991. "The Cleansing Effect of Recessions," NBER Working Papers 3922, National Bureau of Economic Research, Inc.
  15. Hoyt Bleakley & Jeffrey C. Fuhrer, 1997. "Shifts in the Beveridge Curve, job matching, and labor market dynamics," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 3-19.
  16. 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.
  17. Michael J. Pries, 2004. "Persistence of Employment Fluctuations: A Model of Recurring Job Loss," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 193-215.
  18. Silva, José Ignacio & Toledo, Manuel, 2009. "Labor Turnover Costs And The Cyclical Behavior Of Vacancies And Unemployment," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S1), pages 76-96, May.
  19. Shigeru Fujita, 2003. "The Beveridge Curve, Job Creation, and the Propagation of Shocks," Computing in Economics and Finance 2003 273, Society for Computational Economics.
  20. 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.
  21. Harold L. Cole & Richard Rogerson, 1996. "Can the Mortonson-Pissarides matching model match the business cycle facts?," Staff Report 224, Federal Reserve Bank of Minneapolis.
  22. Jackman, R & Layard, Richard & Pissarides, C, 1989. "On Vacancies," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(4), pages 377-94, November.
  23. Bruce Fallick & Charles A. Fleischman, 2004. "Employer-to-employer flows in the U.S. labor market: the complete picture of gross worker flows," Finance and Economics Discussion Series 2004-34, Board of Governors of the Federal Reserve System (U.S.).
  24. Leena Rudanko, 2005. "Labor Market Dynamics under Long Term Wage Contracting," 2005 Meeting Papers 876, Society for Economic Dynamics.
  25. Dale T. Mortensen & Christopher A. Pissarides, 1998. "Technological Progress, Job Creation and Job Destruction," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 733-753, October.
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