Application Cycles

Niklas Engbom
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Niklas Engbom: Federal Reserve Bank of Minneapolis

No 1170, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: This paper asserts that separation rate shocks are a dominant source of business cycle fluctuations in the vacancy-to-unemployment ratio, overturning conventional wisdom. Motivated by new micro-data, I develop a richer model of the hiring process in which unemployed and employed workers decide what positions to apply for based on an imperfect signal of how good a fit they would be, while firms screen applicants to determine whom to hire. Because the unemployed apply for many positions that they are unlikely to be a good fit for, it is harder for firms to ascertain who is qualified for the job during periods of high unemployment, dampening incentives to create jobs. By highlighting an additional source of congestion in labor markets, I find that separation rate shocks explain two thirds of business cycle volatility in the vacancy-to-unemployment ratio and generate a strong negative Beveridge curve, in line with the data.

Date: 2019
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:1170

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