Entry and Exit, Unemployment, and the Business Cycle

41 Pages Posted: 30 Jun 2020

See all articles by Joshua Bernstein

Joshua Bernstein

Indiana University Bloomington - Department of Economics

Alexander W. Richter

Federal Reserve Bank of Dallas

Nathaniel A. Throckmorton

William & Mary

Date Written: June, 2020

Abstract

Establishment entry and exit is strongly correlated with output and unemployment. This paper examines how these linkages affect business cycle dynamics through the lens of a search and matching model augmented to include multi-worker establishments that endogenously enter and exit. Analytical results show cyclical entry and exit cause reallocation of inputs that amplifies and skews business cycle dynamics. When the model is calibrated to the data, it generates realistic asymmetry in output and unemployment, data-consistent counter-cyclical endogenous uncertainty and a 55% higher welfare cost than the model without entry and exit.

JEL Classification: E24, E32, E37, J63, L11

Suggested Citation

Bernstein, Joshua and Richter, Alexander W. and Throckmorton, Nathaniel A., Entry and Exit, Unemployment, and the Business Cycle (June, 2020). FRB of Dallas Working Paper No. 2018, Available at SSRN: https://ssrn.com/abstract=3638738 or http://dx.doi.org/10.24149/wp2018r1

Joshua Bernstein (Contact Author)

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

Alexander W. Richter

Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States
214-922-5360 (Phone)

HOME PAGE: http://alexrichterecon.com

Nathaniel A. Throckmorton

William & Mary ( email )

Economics Department
P.O. Box 8795
Williamsburg, VA 23187
United States

HOME PAGE: http://nathrockmorton.people.wm.edu/

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