Working Paper: NBER ID: w11692
Authors: Dale T. Mortensen; Eva Nagypal
Abstract: Shimer (2005a) argues that the Mortensen-Pissarides equilibrium search model of unemployment explains only about 10% of the response in the job-finding rate to an aggregate productivity shock. Some of the recent papers inspired by his critique are reviewed and commented on here. Specifically, we suggest that the sole problem is neither the procyclicality of the wage nor the failure to account fully for the opportunity cost of employment. Although an amended version of the model, one that accounts for capital costs and counter cyclic involuntary separations, does much better, it still explains only 40% of the observed volatility of the job-finding rate. Finally, allowing for on-the-job search does not improve the amended models implications for the amplification of productivity shocks.
Keywords: unemployment; vacancy fluctuations; job finding rate; productivity shocks
JEL Codes: E2; G0; J0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| job finding rate (J68) | unemployment (J64) |
| productivity shocks (O49) | job finding rate (J68) |
| job finding rate (J68) | wages (J31) |
| productivity shocks (O49) | job finding rates (J68) |
| wage responses (J31) | job finding rate volatility (J63) |
| on-the-job search (J68) | model implications (C59) |
| hiring and training costs (M53) | opportunity cost of employment (J39) |
| job destruction shocks (J63) | unemployment dynamics (J64) |
| job-to-job flows (J62) | unemployment dynamics (J64) |