The Cyclicality of Labor Market Flows: A Multiple-Shock Approach

33 Pages Posted: 25 Oct 2014

See all articles by Jean-Olivier Hairault

Jean-Olivier Hairault

Université Paris I Pantheon-Sorbonne; IZA Institute of Labor Economics

Anastasia Zhutova

Université Paris I Panthéon-Sorbonne

Abstract

In this paper, we aim to provide a comprehensive view of the unemployment dynamics generated by different structural shocks. We show that the relative contribution of the job finding and separation rates to the unemployment dynamics depends on a type of structural shocks. Identified using a sign restrictions approach, the shocks of our Bayesian Structural VAR model capture the possible shifts in the three conditions determining labor market equilibrium in any matching models, namely: the Beveridge curve, the job creation condition, and the job destruction condition.Using US data we then identify a shock to the profitability of a match (the aggregate shock), a shock specific to the existing jobs (job-specific shock) and a shock to the efficiency of the matching process (search shock). The two former shocks generate a quite balanced contribution of the two transition rates to the volatility of unemployment, whereas the search shock implies a disproportionate importance of the job finding rate. We find the same result for French data, which assesses the robustness of the pattern generated by these structural shocks. The difference between the two countries lies more in the relative importance of the shocks. The search shock appears more significant in France, which in the end reinforces the predominant role of the job finding rate in this country.

Keywords: unemployment variability, job separation, job finding, Bayesian Var

JEL Classification: E24, J6

Suggested Citation

Hairault, Jean-Olivier and Zhutova, Anastasia, The Cyclicality of Labor Market Flows: A Multiple-Shock Approach. IZA Discussion Paper No. 8558, Available at SSRN: https://ssrn.com/abstract=2514751 or http://dx.doi.org/10.2139/ssrn.2514751

Jean-Olivier Hairault (Contact Author)

Université Paris I Pantheon-Sorbonne ( email )

12, place du Panthéon
Paris, IL
France

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Anastasia Zhutova

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

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