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Uncertainty and Labor Market Fluctuations

Soojin Jo and Justin Lee

No 1904, Working Papers from Federal Reserve Bank of Dallas

Abstract: We investigate how a macroeconomic uncertainty shock affects the labor market. We focus on the uncertainty transmission mechanism, for which we employ a set of worker flow indicators in addition to labor stock variables. We incorporate common factors from such indicators into a framework that can simultaneously estimate historical macroeconomic uncertainty and its impacts on the macroeconomy and labor market. We find firms defer hiring as the real option value of waiting increases. Moreover, significantly more workers are laid off while voluntary quits drop, suggesting other mechanisms such as the aggregate demand channel play a crucial role.

Keywords: Business cycle; Labor market; Uncertainty; Stochastic volatility (search for similar items in EconPapers)
JEL-codes: C32 D80 E24 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2019-07-02
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DOI: 10.24149/wp1904

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