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The Cyclical Behavior of Job Creation and Job Destruction

  • Dale Mortensen
  • Christopher Pissarides

Panel studies show that job creation and job destruction coexist at all phase of the business cycle. In this paper, we develop a model of endogenous job destruction in response to persistent idiosyncratic shocks and incorporate the model into he transactions cost (matching) approach to equilibrium job creation and wage determination. Second, we examine the dynamic stochastic implications of the model for co-movement between job creation, job destruction, and the employment growth induced by a common aggregate shock to productivity. Finally, a simulation of the model for a reasonable parametrization demonstrates that it can explain cyclical properties of US Manufacturing data.

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File URL: http://www.kellogg.northwestern.edu/research/math/papers/982.pdf
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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 982.

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Date of creation: Feb 1992
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Handle: RePEc:nwu:cmsems:982
Contact details of provider: Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
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Fax: 847/491-2530
Web page: http://www.kellogg.northwestern.edu/research/math/
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  1. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22.
  2. Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues 91-5, Federal Reserve Bank of Chicago.
  3. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
  4. Christiano, Lawrence J, 1990. "Solving the Stochastic Growth Model by Linear-Quadratic Approximation and by Value-Function Iteration," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 23-26, January.
  5. Kenneth L. Judd, 1991. "Minimum weighted residual methods for solving aggregate growth models," Discussion Paper / Institute for Empirical Macroeconomics 49, Federal Reserve Bank of Minneapolis.
  6. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  7. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-68, December.
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