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What Shifts the Beveridge Curve? Recruitment Effort and Financial Shocks

Simon Mongey, Gianluca Violante and Alessandro Gavazza
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Gianluca Violante: NYU

No 1014, 2014 Meeting Papers from Society for Economic Dynamics

Abstract: When compared to the early 2000's, the post financial crisis US labor market has produced a persistently higher unemployment rate relative to the level of vacancies posted by firms. In this paper we provide a quantitative general equilibrium model that explains one possible cause for this change and is consistent with a number of cross-sectional firm level facts that have as yet been unexplored in the literature. We posit a simple mechanism by which financial constraints reduce firm entry and growth of young firms. In good times these firms grow quickly and fill vacancies faster than older, slower growing firms. Vacancies posted following the recession are therefore filled more slowly, shifting the Beveridge curve outwards. This mechanism acts through (i) financial frictions, (ii) the time series change in the distribution of firms, (iii) the cross-sectional relationship between vacancy filling rates and firm growth rates, both of which we document empirically and replicate quantitatively.

Date: 2014
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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