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More on Unemployment and Vacancy Fluctuations

  • Dale T. Mortensen
  • Eva Nagypal

Shimer (2005a) argues that the Mortensen-Pissarides equilibrium search model of unemployment explains only about 10% of the response in the job-finding rate to an aggregate productivity shock. Some of the recent papers inspired by his critique are reviewed and commented on here. Specifically, we suggest that the sole problem is neither the procyclicality of the wage nor the failure to account fully for the opportunity cost of employment. Although an amended version of the model, one that accounts for capital costs and counter cyclic involuntary separations, does much better, it still explains only 40% of the observed volatility of the job-finding rate. Finally, allowing for on-the-job search does not improve the amended models implications for the amplification of productivity shocks.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11692.

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Date of creation: Oct 2005
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Publication status: published as 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.
Handle: RePEc:nbr:nberwo:11692
Note: EFG LS
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  1. Giuseppe Moscarini, 2005. "Job Matching and the Wage Distribution," Econometrica, Econometric Society, vol. 73(2), pages 481-516, 03.
  2. 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.
  3. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  4. John Kennan, 2006. "Private Information, Wage Bargaining and Employment Fluctuations," NBER Working Papers 11967, National Bureau of Economic Research, Inc.
  5. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers 546, Board of Governors of the Federal Reserve System (U.S.).
  6. 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.
  7. Gary Solon & Robert Barsky & Jonathan A. Parker, 1992. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias," NBER Working Papers 4202, National Bureau of Economic Research, Inc.
  8. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "Job reallocation, employment fluctuations and unemployment," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 18, pages 1171-1228 Elsevier.
  9. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  10. Pissarides, Christopher A, 1994. "Search Unemployment with On-the-Job Search," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 457-75, July.
  11. Robert E. Hall & Paul R. Milgrom, 2007. "The Limited Influence of Unemployment on the Wage Bargain," Levine's Bibliography 321307000000000135, UCLA Department of Economics.
  12. Robert Shimer, 2004. "The Consequences of Rigid Wages in Search Models," NBER Working Papers 10326, National Bureau of Economic Research, Inc.
  13. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  14. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  15. Devine, Theresa J. & Kiefer, Nicolas M., 1991. "Empirical Labor Economics: The Search Approach," OUP Catalogue, Oxford University Press, number 9780195059366, March.
  16. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  17. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May.
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