Persistence of Employment Fluctuations: A Model of Recurring Job Loss

Michael Pries (mpries@nd.edu)

The Review of Economic Studies, 2004, vol. 71, issue 1, 193-215

Abstract: Standard models of employment fluctuations cannot reconcile the unemployment rate's remarkable persistence with the high job-finding rates found in worker flows data. A matching model emphasizing high hazard rates among newly formed firm-worker matches can resolve this shortcoming. In the model, matches are experience goods; consequently, newly employed workers face higher hazard rates. Following a job loss, workers may experience several short-lived jobs before finding stable employment. At an aggregate level, an initial burst of job loss precipitates a steady flow of recurring job loss. A simulation shows that this recurring job loss can account for the fact that the unemployment rate remains elevated for as much as 4 or 5 years following an initial jump. Copyright 2004, Wiley-Blackwell.

Date: 2004
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