More on Unemployment and Vacancy Fluctuations

30 Pages Posted: 18 Oct 2005

See all articles by Dale T. Mortensen

Dale T. Mortensen

Northwestern University - Department of Economics; IZA Institute of Labor Economics

Eva Nagypal

Northwestern University - Department of Economics; Northwestern University - Institute for Policy Research

Multiple version iconThere are 2 versions of this paper

Date Written: September 2005

Abstract

Shimer (2005a) argues that the Mortensen-Pissarides equilibrium search model of unemployment explains only about 10% of the response in the job-finding rate to an aggregate productivity shock. Some of the recent papers inspired by his critique are reviewed and commented on here. Specifically, we suggest that the sole problem is neither the procyclicality of the wage nor the failure to account fully for the opportunity cost of employment. Although an amended version of the model, one that accounts for capital costs and counter cyclic involuntary separations, does much better, it still explains only 40% of the observed volatility of the job-finding rate. Finally, allowing for on-the-job search does not improve the amended model's implications for the amplification of productivity shocks.

Keywords: labor market search, unemployment and vacancies volatility, job-finding rate, productivity shocks

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

Suggested Citation

Mortensen, Dale T. and Nagypal, Eva, More on Unemployment and Vacancy Fluctuations (September 2005). IZA Discussion Paper No. 1765, Available at SSRN: https://ssrn.com/abstract=825651

Dale T. Mortensen (Contact Author)

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8230 (Phone)
847-491-7001 (Fax)

IZA Institute of Labor Economics

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

Eva Nagypal

Northwestern University - Department of Economics ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Northwestern University - Institute for Policy Research ( email )

2040 Sheridan Road
Evanston, IL 60208-4100
United States

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