Specific Capital and Vintage Effects on the Dynamics of Unemployment and Vacancies

33 Pages Posted: 6 Sep 2008

See all articles by Burcu Eyigungor

Burcu Eyigungor

Federal Reserve Bank of Philadelphia

Date Written: May 7, 2008

Abstract

In a reasonably calibrated Mortensen and Pissarides matching model, shocks to average labor productivity can account for only a small portion of the fluctuations in unemployment and vacancies (Shimer (2005a)). In this paper, the author argues that if vintage specific shocks rather than aggregate productivity shocks are the driving force of fluctuations, the model does a better job of accounting for the data. She adds heterogeneity in jobs (matches) with respect to the time the job is created in the form of different embodied technology levels. The author also introduces specific capital that, once adapted for a match, has less value in another match. In the quantitative analysis, she shows that shocks to different vintages of entrants are able to account for fluctuations in unemployment and vacancies and that, in this environment, specific capital is important to decreasing the volatility of the destruction rate of existing matches.

Keywords: Search, Matching, Business Cycles, Labor Markets

JEL Classification: E24, E32, J41, J63, J64

Suggested Citation

Eyigungor, Burcu, Specific Capital and Vintage Effects on the Dynamics of Unemployment and Vacancies (May 7, 2008). FRB of Philadelphia Working Paper No. 08-6. Available at SSRN: https://ssrn.com/abstract=1138001 or http://dx.doi.org/10.2139/ssrn.1138001

Burcu Eyigungor (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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