The Dynamic Beveridge Curve
44 Pages Posted: 13 Oct 2005
Date Written: August 2005
Abstract
In aggregate U.S. data, exogenous shocks to labor productivity induce highly persistent and hump-shaped responses to both the vacancy-unemployment ratio and employment. The authors show that the standard version of the Mortensen-Pissarides matching model fails to replicate this dynamic pattern due to the rapid responses of vacancies. They extend the model by introducing a sunk cost for creating new job positions, motivated by the well-known fact that worker turnover exceeds job turnover. In the matching model with sunk costs, vacancies react sluggishly to shocks, leading to highly realistic dynamics.
Keywords: Unemployment, Vacancies, Labor adjustment, Matching
JEL Classification: E32, J63, J64
Suggested Citation: Suggested Citation
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