Journal Article

Persistence of Employment Fluctuations: A Model of Recurring Job Loss

Michael J. Pries

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 71, issue 1, pages 193-215
Published in print January 2004 | ISSN: 0034-6527
Published online January 2004 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/0034-6527.00281
Persistence of Employment Fluctuations: A Model of Recurring Job Loss

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  • Particular Labour Markets
  • Macroeconomics: Consumption, Saving, Production, Employment, and Investment
  • Mobility, Unemployment, and Vacancies

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Standard models of employment fluctuations cannot reconcile the unemployment rate's remarkable persistence with the high job-finding rates found in worker flows data. A matching model emphasizing high hazard rates among newly formed firm-worker matches can resolve this shortcoming. In the model, matches are experience goods; consequently, newly employed workers face higher hazard rates. Following a job loss, workers may experience several short-lived jobs before finding stable employment. At an aggregate level, an initial burst of job loss precipitates a steady flow of recurring job loss. A simulation shows that this recurring job loss can account for the fact that the unemployment rate remains elevated for as much as 4 or 5 years following an initial jump.

Keywords: E24; J41; J64

Journal Article.  12955 words.  Illustrated.

Subjects: Particular Labour Markets ; Macroeconomics: Consumption, Saving, Production, Employment, and Investment ; Mobility, Unemployment, and Vacancies

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