The Dynamic Beveridge Curve
Federal Reserve Bank of Philadelphia
University of California, San Diego (UCSD) - Department of Economics
FRB Philadelphia Working Paper No. 05-22
In aggregate U.S. data, exogenous shocks to labor productivity induce highly persistent and hump-shaped responses to both the vacancy-unemployment ratio and employment. The authors show that the standard version of the Mortensen-Pissarides matching model fails to replicate this dynamic pattern due to the rapid responses of vacancies. They extend the model by introducing a sunk cost for creating new job positions, motivated by the well-known fact that worker turnover exceeds job turnover. In the matching model with sunk costs, vacancies react sluggishly to shocks, leading to highly realistic dynamics.
Number of Pages in PDF File: 44
Keywords: Unemployment, Vacancies, Labor adjustment, Matching
JEL Classification: E32, J63, J64working papers series
Date posted: October 13, 2005
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