Unemployment cycles

Jan Eeckhout and Ilse Lindenlaub
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Ilse Lindenlaub: Institute for Fiscal Studies

No W15/26, IFS Working Papers from Institute for Fiscal Studies

Abstract: The labor market by itself can create cyclical outcomes, even in the absence of exogenous shocks. We propose a theory that shows that the search behavior of the employed has profound aggregate implications for the unemployed. There is a strategic complementarity between active on-the-job search and vacancy posting by firms: active search changes the number of searchers and the duration of a job, and in the presence of sorting, it improves the quality of the pool of searchers. More vacancy posting in turn makes costly on-the-job search more attractive, a self-fulfilling belief. The absence of on-the-job search discourages vacancy posting, rendering costly on-the-job search unattractive. This model of multiple equilibria can account for large fluctuations in vacancies, unemployment, and job-to-job transitions; it provides a rationale for the Jobless Recovery through a novel channel of the employed searchers crowding out the unemployed; and it gives rise to a shift in the Beveridge Curve (the unemployment-vacancy locus). Each of these phenomena is matched in the data.

Keywords: On-the-job search; strategic complementarity; unemployment cycles; sorting; mis-match; job-to-job flows; Jobless Recovery (search for similar items in EconPapers)
Date: 2015-09-16
New Economics Papers: this item is included in nep-dge
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Journal Article: Unemployment Cycles (2019)
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