What Shifts the Beveridge Curve? Recruiting Intensity and Financial Shocks

Simon Mongey, Gianluca Violante and Alessandro Gavazza
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Gianluca Violante: NYU

No 1079, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: Labor market data show a substantial deterioration of aggregate matching efficiency around the Great Recession, even after controlling for compositional changes among job seekers. We augment the multiworker-firm version of the equilibrium random-matching model of the labor market with endogenous firm entry and exit, a choice of recruiting intensity when hiring, and a dividend constraint that induces some firms to borrow and some of those with debt to default. We use the model to study whether aggregate financial shocks can account for the observed drop in matching efficiency--and the ensuing shift in the Beveridge curve--through a reduction in the average recruiting intensity in the economy. Central to this mechanism is the role of young firms which contribute disproportionately to job creation, display the highest recruitment effort per vacancy and, at the same time, are heavily dependant on external finance.

Date: 2015
New Economics Papers: this item is included in nep-dge and nep-mac
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