32 Pages Posted: 14 Nov 2006
Date Written: September 2006
This paper proposes a matching model that distinguishes between job creation by existing firms and job creation by firm entrants. The paper argues that vacancy posting and job destruction on the extensive margin, i.e. from firms that enter and exit the labour market, represents a viable mechanism for understanding the cyclical properties of vacancies and unemployment. The model features both hiring freeze and bankruptcies, where the former represents a sudden shut down of vacancy posting at the firm level with labour downsizing governed by natural turnover. A bankrupt firm, conversely, shut down its vacancies and lay offs its stock of workers. Recent research in macroeconomics has shown that a calibration of the Mortensen and Pissarides matching model account for 10 percent of the cyclical variability of the vacancy unemployment ratio displayed by U.S. data. A calibration of the model that explicitly considers hiring freeze and bankruptcy can account for 20 to 35 percent of the variability displayed by the data.
Keywords: Unemployment dynamics, matching models
JEL Classification: J30
Suggested Citation: Suggested Citation
Garibaldi, Pietro, Hiring Freeze and Bankruptcy in Unemployment Dynamics (September 2006). CEPR Discussion Paper No. 5835. Available at SSRN: https://ssrn.com/abstract=944869
This is a CEPR Discussion Paper. CEPR charges a fee of $5.00 for this paper.Login using your CEPR Personal Profile
File name: SSRN-id944869.
If you wish to purchase the right to make copies of this paper for distribution to others, please select the quantity.