Job Matching and Propagation

35 Pages Posted: 19 Jul 2006

See all articles by Shigeru Fujita

Shigeru Fujita

Federal Reserve Bank of Philadelphia

Garey Ramey

University of California, San Diego (UCSD) - Department of Economics

Date Written: July 2006

Abstract

In the U.S. labor market, the vacancy-unemployment ratio and employment react sluggishly to productivity shocks. The authors show that the job matching model in its standard form cannot reproduce these patterns due to excessively rapid vacancy responses. Extending the model to incorporate sunk costs for vacancy creation yields highly realistic dynamics. Creation costs induce entrant firms to smooth the adjustment of new openings following a shock, leading the stock of vacancies to react sluggishly

Keywords: Unemployment, Vacancies, Labor Adjustment, Matching

JEL Classification: E32, J63, J64

Suggested Citation

Fujita, Shigeru and Ramey, Garey, Job Matching and Propagation (July 2006). FRB of Philadelphia Working Paper No. 06-13, Available at SSRN: https://ssrn.com/abstract=916787 or http://dx.doi.org/10.2139/ssrn.916787

Shigeru Fujita (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

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Philadelphia, PA 19106-1574
United States

Garey Ramey

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-5721 (Phone)
858-534-7040 (Fax)

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