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Aggregate Job Destruction and Inventory Liquidation

  • Robert E. Hall

In a recession, jobs are destroyed and inventories are liquidated. I concentrate on the intertemporal mechanisms that result in economy-wide job destruction and inventory runoffs. Forces that raise the real interest rate -- especially temporarily -- also cause destruction and runoffs. I consider a model where the job destruction decision is made efficiently, will full consideration of the search costs imposed on discharged workers. I also consider a model of inefficient job destruction, where employers discharge workers who are paid fixed wages as long as they are employed. The impulse response functions for these models resemble those found in data for the United States. A shock that causes a jump in the expected real interest rate results in an immediate spike of job destruction and inventory liquidation, followed by a declining pattern of additional destruction and runoff.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6912.

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Date of creation: Jan 1999
Date of revision:
Handle: RePEc:nbr:nberwo:6912
Note: EFG
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  1. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, June.
  2. Ricardo J. Caballero & Mohamad L. Hammour, 1997. "Jobless Growth: Appropriability, Factor Substitution, and Unemployment," NBER Working Papers 6221, National Bureau of Economic Research, Inc.
  3. Ricardo J. Caballero & Mohamad L. Hammour, 1994. "On the Timing and Efficiency of Creative Destruction," NBER Working Papers 4768, National Bureau of Economic Research, Inc.
  4. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  5. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-79, December.
  6. Kreps, David M., 1981. "Arbitrage and equilibrium in economies with infinitely many commodities," Journal of Mathematical Economics, Elsevier, vol. 8(1), pages 15-35, March.
  7. Ricardo J. Caballero & Mohamad L. Hammour, 1996. "The "Fundamental Transformation" in Macroeconomics," NBER Working Papers 5471, National Bureau of Economic Research, Inc.
  8. Hart, Oliver D, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," Review of Economic Studies, Wiley Blackwell, vol. 50(1), pages 3-35, January.
  9. Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186 National Bureau of Economic Research, Inc.
  10. Ramey, Garey & Watson, Joel, 1997. "Contractual Fragility, Job Destruction, and Business Cycles," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 873-911, August.
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