The Dynamic Beveridge Curve

Shigeru Fujita and Garey Ramey

University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

Abstract: In aggregate U.S. data, exogenous shocks to labor productivity induce highly persistent and hump-shaped responses to both the vacancy-unemployment ratio and employment. We show that the standard version of the Mortensen-Pissarides matching model fails to replicate this dynamic pattern due to the rapid responses of vacancies. We extend the model by introducing a sunk cost for creating new job positions, motivated by the well-known fact that worker turnover exceeds job turnover. In the matching model with sunk costs, vacancies react sluggishly to shocks, leading to highly realistic dynamics.

Keywords: Unemployment; Vacancies; Labor Adjustment; Matching (search for similar items in EconPapers)
Date: 2005-08-01
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Citations: View citations in EconPapers (28)

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Related works:
Working Paper: The Dynamic Beveridge Curve (2006)
Working Paper: The dynamic Beveridge curve (2005)
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