A Congestion Theory of Unemployment Fluctuations

Yusuf Mercan, Benjamin Schoefer and SedlÃ¡Ä ek, Petr
Authors registered in the RePEc Author Service: Petr Sedlacek

No 15500, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We propose a theory of unemployment fluctuations in which new hires and incumbent workers are imperfect substitutes. Hence, attempts to hire away the unemployed during recessions diminish the marginal product of new hires, discouraging job creation. This single feature achieves a ten-fold increase in the volatility of hiring in an otherwise standard search model, produces a realistic Beveridge curve despite countercyclical separations, and explains 30-40% of US unemployment fluctuations. Additionally, it explains the excess procyclicality of new hires' wages, the cyclical labor wedge, countercyclical earnings losses from job displacement, and the limited steady-state effects of unemployment insurance.

JEL-codes: E24 J63 J64 (search for similar items in EconPapers)
Date: 2022-03
New Economics Papers: this item is included in nep-ias and nep-mac
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: A Congestion Theory of Unemployment Fluctuations (2024)
Working Paper: A Congestion Theory of Unemployment Fluctuations (2021)
Working Paper: A Congestion Theory of Unemployment Fluctuations (2020)
Working Paper: A Congestion Theory of Unemployment Fluctuations (2020)
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