High Youth Unemployment Volatility: A Risk-based Explanation

51 Pages Posted: 7 Aug 2017 Last revised: 25 Feb 2018

See all articles by Indrajit Mitra

Indrajit Mitra

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Yu Xu

University of Delaware

Date Written: August 4, 2017

Abstract

We quantitatively analyze a heterogenous agent equilibrium model of search and matching in the presence of persistent aggregate shocks. In our model, employers learn about an unobservable component to a worker's productivity from performance. Our model makes two predictions. First, we show that accounting for realistic variation in discount rates is important to generate the quantitatively large differences in employment dynamics between young and old workers in the data. Second, our model predicts that a higher sensitivity of the unemployment rate of young workers in high beta industries compared to low beta industries. We test this cross-sectional prediction and find support for it in the data.

Keywords: business cycle, financial markets, unemployment

JEL Classification: E24, E32, E44, D83, G12, J11, J23, J63, J64

Suggested Citation

Mitra, Indrajit and Xu, Yu, High Youth Unemployment Volatility: A Risk-based Explanation (August 4, 2017). Available at SSRN: https://ssrn.com/abstract=3013721 or http://dx.doi.org/10.2139/ssrn.3013721

Indrajit Mitra

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Yu Xu (Contact Author)

University of Delaware ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States

HOME PAGE: http://https://www.yuxufinance.net/

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