Abstract

http://ssrn.com/abstract=2263501
 


 



A Forest Fire Theory of Recessions and Unemployment


Matthew O. Jackson


Stanford University - Department of Economics; Santa Fe Institute; Canadian Institute for Advanced Research (CIFAR)

Pietro Tebaldi


Stanford University - Department of Economics

July 2014


Abstract:     
We introduce a general model of matching from firms' perspectives (that nests standard search models as special cases), and show that it yields non-stationary distributions of employment in response to stationary exogenous shocks: the longer since the last recession the larger the drop in employment. The key insight is that in high-demand states firms prefer to hire a low productivity worker than to have a vacancy. Bad worker-firm matches accumulate during upswings, increasing the drop in employment when a negative shock eventually hits the economy. We provide empirical evidence for this in US regional data from 1969-2012.

Number of Pages in PDF File: 49

Keywords: recessions, employment, unemployment, matching, search, business cycles, macro-dynamics

JEL Classification: E24, E32, D92, D21, D22

working papers series





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Date posted: July 8, 2013 ; Last revised: July 10, 2014

Suggested Citation

Jackson, Matthew O. and Tebaldi, Pietro, A Forest Fire Theory of Recessions and Unemployment (July 2014). Available at SSRN: http://ssrn.com/abstract=2263501 or http://dx.doi.org/10.2139/ssrn.2263501

Contact Information

Matthew O. Jackson (Contact Author)
Stanford University - Department of Economics ( email )
Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
1-650-723-3544 (Phone)
HOME PAGE: http://www.stanford.edu/~jacksonm
Santa Fe Institute
1399 Hyde Park Road
Santa Fe, NM 87501
United States
Canadian Institute for Advanced Research (CIFAR) ( email )
180 Dundas Street West, Suite 1400
Toronto, Ontario
Canada
Pietro Tebaldi
Stanford University - Department of Economics ( email )
Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
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