 A Congestion Theory of Unemployment FluctuationsYusuf Mercan, Benjamin Schoefer and Petr SedlÃ¡Ä Ek No 927, Economics Series Working Papers from University of Oxford, Department of Economics Abstract: In recessions, unemployment increases despite the—perhaps counterintuitive—fact that the number of unemployed workers finding jobs expands. On net, unemployment rises only because even more workers lose their jobs. We propose a theory of unemployment fluctuations resting on this countercyclicality of gross flows from unemployment into employment. In recessions, the abundance of new hires “congests†the jobs the unemployed fill, diminishes their marginal product and discourages further job creation. Countercyclical congestion alone explains about 30–40 percent of U.S. unemployment fluctuations. Besides generating realistic labor market volatility, it also provides a unified explanation for the cyclical labor wedge, the excess earnings losses from job displacement and from graduating during recessions, and the insen¬sitivity of unemployment to labor market policies, such as unemployment insurance. Date: 2020-12-16 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:927 Access Statistics for this paper More papers in Economics Series Working Papers from University of Oxford, Department of Economics Contact information at EDIRC. |
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