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What Shifts the Beveridge Curve? Recruitment Effort and Financial Shocks

Author

Listed:
  • Simon Mongey

    (NYU)

  • Gianluca Violante

    (NYU)

  • Alessandro Gavazza

    (London School of Economics)

Abstract

When compared to the early 2000's, the post financial crisis US labor market has produced a persistently higher unemployment rate relative to the level of vacancies posted by firms. In this paper we provide a quantitative general equilibrium model that explains one possible cause for this change and is consistent with a number of cross-sectional firm level facts that have as yet been unexplored in the literature. We posit a simple mechanism by which financial constraints reduce firm entry and growth of young firms. In good times these firms grow quickly and fill vacancies faster than older, slower growing firms. Vacancies posted following the recession are therefore filled more slowly, shifting the Beveridge curve outwards. This mechanism acts through (i) financial frictions, (ii) the time series change in the distribution of firms, (iii) the cross-sectional relationship between vacancy filling rates and firm growth rates, both of which we document empirically and replicate quantitatively.

Suggested Citation

  • Simon Mongey & Gianluca Violante & Alessandro Gavazza, 2014. "What Shifts the Beveridge Curve? Recruitment Effort and Financial Shocks," 2014 Meeting Papers 1014, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:1014
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    References listed on IDEAS

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    Cited by:

    1. Kohlbrecher, Britta & Merkl, Christian, 2022. "Business cycle asymmetries and the labor market," Journal of Macroeconomics, Elsevier, vol. 73(C).
    2. Lisauskaite, Elena, 2022. "Matching Efficiency and Heterogeneous Workers in the UK," IZA Discussion Papers 15610, Institute of Labor Economics (IZA).
    3. Modestino, Alicia Sasser & Shoag, Daniel & Ballance, Joshua, 2016. "Downskilling: changes in employer skill requirements over the business cycle," Labour Economics, Elsevier, vol. 41(C), pages 333-347.
    4. Benjamin Wild Pugsley & Ay’egul ahin, 2019. "Grown-up Business Cycles," The Review of Financial Studies, Society for Financial Studies, vol. 32(3), pages 1102-1147.

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