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What Shifts the Beveridge Curve? Recruitment Effort and Financial Shocks

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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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    1. Leo Kaas & Philipp Kircher, 2015. "Efficient Firm Dynamics in a Frictional Labor Market," American Economic Review, American Economic Association, vol. 105(10), pages 3030-3060, October.
    2. Aubhik Khan & Julia K. Thomas, 2013. "Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity," Journal of Political Economy, University of Chicago Press, vol. 121(6), pages 1055-1107.
    3. Gian Luca Clementi & Dino Palazzo, 2010. "Entry, Exit, Firm Dynamics, and Aggregate Fluctuations," Working Paper series 27_10, Rimini Centre for Economic Analysis.
    4. Michael W. L. Elsby & Ryan Michaels, 2013. "Marginal Jobs, Heterogeneous Firms, and Unemployment Flows," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(1), pages 1-48, January.
    5. Peter Diamond, 2013. "Cyclical Unemployment, Structural Unemployment," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(3), pages 410-455, August.
    6. Steven J. Davis & R. Jason Faberman & John C. Haltiwanger, 2013. "The Establishment-Level Behavior of Vacancies and Hiring," The Quarterly Journal of Economics, Oxford University Press, vol. 128(2), pages 581-622.
    7. David Wiczer, 2013. "Long-term Unemployment: Attached and Mismatched?," 2013 Meeting Papers 1101, Society for Economic Dynamics.
    8. John C. Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," NBER Working Papers 16300, National Bureau of Economic Research, Inc.
    9. Siemer, Michael, 2014. "Firm Entry and Employment Dynamics in the Great Recession," Finance and Economics Discussion Series 2014-56, Board of Governors of the Federal Reserve System (U.S.).
    10. Gian Luca Clementi & Dino Palazzo, 2010. "Entry, Exit, Firm Dynamics, and Aggregate Fluctuations," Working Papers 10-16, New York University, Leonard N. Stern School of Business, Department of Economics.
    11. Dino Palazzo & Gian Luca Clementi, 2010. "Entry, Exit, Firm Dynamics, and Aggregate Fluctuations," 2010 Meeting Papers 1188, Society for Economic Dynamics.
    12. Francisco Buera & Roberto Fattal-Jaef & Yongseok Shin, 2015. "Anatomy of a Credit Crunch: From Capital to Labor Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(1), pages 101-117, January.
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    Cited by:

    1. Kohlbrecher, Britta & Merkl, Christian, 2016. "Business Cycle Asymmetries and the Labor Market," IZA Discussion Papers 9816, Institute for the Study of Labor (IZA).
    2. Pugsley, Benjamin & Sahin, Aysegul, 2014. "Grown-up business cycles," Staff Reports 707, Federal Reserve Bank of New York, revised 01 Sep 2015.
    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.

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