Pizzinelli, C. and Theodoridis, K. and Zanetti, F. (2020) State dependence in labor market fluctuations. Working Paper. Birkbeck, University of London, London, UK.
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Abstract
This paper documents state dependence in labor market uctuations. Using a Threshold Vector Autoregression model (TVAR), we establish that the unemployment rate, the job separation rate, and the job finding rate exhibit a larger response to productivity shocks during periods with low aggregate productivity. A Diamond-Mortensen-Pissarides model with endogenous job separation and on-the-job search replicates these empirical regularities well. We calibrate the model to match the standard deviation of the job-transition rates explained by productivity shocks in the TVAR, and show that the model explains 88 percent of the state dependence in the unemployment rate, 76 percent for the separation rate and 36 percent for the job finding rate. The key channel underpinning state dependence in both job separation and job finding rates is the interaction of the firm's reservation productivity level and the distribution of match-specific idiosyncratic productivity. Results are robust across several variations to the baseline model.
Metadata
| Item Type: | Monograph (Working Paper) |
|---|---|
| Additional Information: | BCAM Working Paper Series 2001. ISSN 1745-8587 |
| Keyword(s) / Subject(s): | Search and Matching Models, State Dependence in Business Cycles, Threshold Vector Autoregression |
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Research Centres and Institutes: | Applied Macroeconomics, Birkbeck Centre for |
| Depositing User: | Administrator |
| Date Deposited: | 04 Mar 2020 14:08 |
| Last Modified: | 02 Aug 2023 17:58 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/31149 |
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