Unemployment in a Production Network

63 Pages Posted: 21 May 2023 Last revised: 11 Dec 2023

See all articles by Finn Schüle

Finn Schüle

Brown University

Haoyu Sheng

Brown University - Department of Economics

Date Written: May 15, 2023

Abstract

We model a production network economy with sectoral and occupational unemployment by incorporating matching between job-seekers across various occupations and employers in different production sectors. In combination, these two realistic features of any modern economy lead to large and pervasive unemployment responses across sectors and occupations. In addition, our model predicts larger output responses relative to an efficient production network. We demonstrate the empirical significance of our novel propagation mechanism by calibrating our model to the U.S. economy. A 1% productivity shock to the durable manufacturing sector results in a 0.41% increase in real GDP, and a 0.22pp decrease in unemployment. In contrast, in an efficient production network model, the same shock results in a 0.26% increase in GDP and no change in unemployment.

Keywords: Production Network, Search Frictions, Tightness, Unemployment

JEL Classification: E1, J3, J6

Suggested Citation

Schüle, Finn and Sheng, Haoyu, Unemployment in a Production Network (May 15, 2023). Available at SSRN: https://ssrn.com/abstract=4449027 or http://dx.doi.org/10.2139/ssrn.4449027

Finn Schüle

Brown University ( email )

64 Waterman Street
Providence, RI 02912
United States

Haoyu Sheng (Contact Author)

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

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