Sectoral Shifts and Cyclical Unemployment
01 Aug 1982-Journal of Political Economy (The University of Chicago Press)-Vol. 90, Iss: 4, pp 777-793
TL;DR: In this article, the authors present evidence that most of the unemployment fluctuations of the seventies (unlike those in the sixties) were induced by unusual structural shifts within the U.S. economy.
Abstract: A substantial fraction of cyclical unemployment is better characterized as fluctuations of the "frictional" or "natural" rate than as deviations from some relatively stable natural rate. Shifts of employment demand between sectors of the economy necessitate continuous labor reallocation. Since it takes time for workers to find new jobs, some unemployment is unavoidable. This paper presents evidence that most of the unemployment fluctuations of the seventies (unlike those in the sixties) were induced by unusual structural shifts within the U.S. economy. Simple time-series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market. These models are estimated and a derived natural rate series is constructed.
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TL;DR: In this paper, a model with a time varying second moment is proposed to simulate a macro uncertainty shock, which produces a rapid drop and rebound in aggregate output and employment, which occurs because higher uncertainty causes firms to temporarily pause their investment and hiring.
Abstract: Uncertainty appears to jump up after major shocks like the Cuban Missile crisis, the assassination of JFK, the OPEC I oil-price shock and the 9/11 terrorist attack This paper offers a structural framework to analyze the impact of these uncertainty shocks I build a model with a time varying second moment, which is numerically solved and estimated using firm level data The parameterized model is then used to simulate a macro uncertainty shock, which produces a rapid drop and rebound in aggregate output and employment This occurs because higher uncertainty causes firms to temporarily pause their investment and hiring Productivity growth also falls because this pause in activity freezes reallocation across units In the medium term the increased volatility from the shock induces an overshoot in output, employment and productivity Thus, second moment shocks generate short sharp recessions and recoveries This simulated impact of an uncertainty shock is compared to VAR estimations on actual data, showing a good match in both magnitude and timing The paper also jointly estimates labor and capital convex and non-convex adjustment costs Ignoring capital adjustment costs is shown to lead to substantial bias while ignoring labor adjustment costs does not
3,405Â citations
TL;DR: In this article, the authors argue that the textbook search and matching model cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies in response to shocks of a plausible magnitude.
Abstract: This paper argues that the textbook search and matching model cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies in response to shocks of a plausible magnitude. In the United States, the standard deviation of the vacancy-unemployment ratio is almost 20 times as large as the standard deviation of average labor productivity, while the search model predicts that the two variables should have nearly the same volatility. A shock that changes average labor productivity primarily alters the present value of wages, generating only a small movement along a downward-sloping Beveridge curve (unemploymentvacancy locus). A shock to the separation rate generates a counterfactually positive correlation between unemployment and vacancies. In both cases, the model exhibits virtually no propagation. (JEL E24, E32, J41, J63, J64)
2,672Â citations
TL;DR: This paper surveys the microfoundations, empirical evidence, and estimation issues underlying the aggregate matching function and discusses spatial aggregation issues, and implications of on-the-job search and of the timing of stocks and flows for estimated matching functions.
Abstract: This paper surveys the microfoundations, empirical evidence, and estimation issues underlying the aggregate matching function. There is no consensus yet on microfoundations but one is emerging on estimation. An aggregate, constant returns, Cobb-Douglas matching function with hires as a function of vacancies and unemployment has been successfully estimated for several countries. Recent work has utilized disaggregated data to go beyond aggregate estimates, with many refinements and suggestions for future research. The paper discusses spatial aggregation issues, and implications of on-the-job search and of the timing of stocks and flows for estimated matching functions.
2,351Â citations
TL;DR: In this article, a model with a time-varying second moment is proposed to simulate a macro uncertainty shock, which produces a rapid drop and rebound in aggregate output and employment.
Abstract: Uncertainty appears to jump up after major shocks like the Cuban Missile crisis, the assassination of JFK, the OPEC I oil-price shock, and the 9/11 terrorist attacks. This paper offers a structural framework to analyze the impact of these uncertainty shocks. I build a model with a time-varying second moment, which is numerically solved and estimated using firm-level data. The parameterized model is then used to simulate a macro uncertainty shock, which produces a rapid drop and rebound in aggregate output and employment. This occurs because higher uncertainty causes firms to temporarily pause their investment and hiring. Productivity growth also falls because this pause in activity freezes reallocation across units. In the medium term the increased volatility from the shock induces an overshoot in output, employment, and productivity. Thus, uncertainty shocks generate short sharp recessions and recoveries. This simulated impact of an uncertainty shock is compared to vector autoregression estimations on actual data, showing a good match in both magnitude and timing. The paper also jointly estimates labor and capital adjustment costs (both convex and nonconvex). Ignoring capital adjustment costs is shown to lead to substantial bias, while ignoring labor adjustment costs does not.
2,256Â citations
TL;DR: In this paper, the authors used a disaggregated approach to study the volatility of common stocks at the market, industry, and firm levels and found that over the period from 1962 to 1997 there has been a noticeable increase in firm-level volatility relative to market volatility.
Abstract: This paper uses a disaggregated approach to study the volatility of common stocks at the market, industry, and firm levels. Over the period from 1962 to 1997 there has been a noticeable increase in firm-level volatility relative to market volatility. Accordingly, correlations among individual stocks and the explanatory power of the market model for a typical stock have declined, whereas the number of stocks needed to achieve a given level of diversification has increased. All the volatility measures move together countercyclically and help to predict GDP growth. Market volatility tends to lead the other volatility series. Factors that may be responsible for these findings are suggested.
1,950Â citations
References
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TL;DR: In this article, Small raises a number of questions concerning my 1977 study of money growth and unemployment in the United States, and re-examination of the evidence indicates that his major criticisms are unfounded specifically, the estimated effects of monetary shocks on the unemployment rate are robust to his suggested changes in specification.
Abstract: David Small raises a number of questions concerning my 1977 study of money growth and unemployment in the United States. My reexamination of the evidence indicates that his major criticisms are unfounded specifically, the estimated effects of monetary shocks on the unemployment rate are robust to his suggested changes in specification. On the other hand, there are some difficulties with the estimated unemployment effects of some "real" variables that is, with the determinants of the "natural" unemployment rate.
838Â citations
TL;DR: In this article, the authors present a study on wage and employment determination in a single market and discuss the impact of the rest of the economy on this market by certain given parameters.
723Â citations
01 Jan 1973
500Â citations
TL;DR: In this paper, a theory of the natural or equilibrium rate of unemployment is built around a model of the duration of employment, where most unemployed workers became unemployed because their previous jobs came to an end; only a minority are on temporary layoff or have just entered the labor force.
155Â citations