State Dependence in Labor Market Fluctuations

Carlo Pizzinelli (), Konstantinos Theodoridis and Francesco Zanetti
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Carlo Pizzinelli: International Monetary Fund

No E2020/2, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: This paper documents state dependence in labor market fluctuations. 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.

Keywords: Forecast Breaks; Statistical Decision Making; Central Banking (search for similar items in EconPapers)
JEL-codes: C53 E47 E58 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2020-03
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: STATE DEPENDENCE IN LABOR MARKET FLUCTUATIONS (2020)
Working Paper: State Dependence in Labor Market Fluctuations (2020)
Working Paper: State dependence in labour market fluctuations (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cdf:wpaper:2020/2

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