Working Paper: CEPR ID: DP4183
Authors: Lars Ljungqvist; Thomas J. Sargent
Abstract: We recalibrate den Haan, Haefke, and Ramey's matching model to incorporate our preferred specification of 'turbulence' as causing distinct dynamics of human capital after voluntary and involuntary job losses. Under our calibration, with high unemployment benefits, an increase in turbulence increases the unemployment rate and the duration of unemployment while leaving the inflow rate into unemployment roughly unchanged, mirroring features of European data in the 1980s and 1990s. The essential issue is that den Haan, Haefke, and Ramey specify that in turbulent times workers experiencing layoffs and quits are both subject to instantaneous skill losses, while we restrict instantaneous skill losses to laid off workers.
Keywords: European unemployment; turbulence
JEL Codes: E24; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in turbulence (E32) | increase in unemployment rate (F66) |
| increase in turbulence (E32) | longer duration of unemployment (J64) |
| high unemployment benefits (J65) | longer duration of unemployment (J64) |
| turbulence (E32) | skill losses in laid-off workers (J65) |
| laid-off workers (J63) | skill losses (J24) |
| increase in turbulence (E32) | unchanged inflow rate into unemployment (J69) |