Eeckhout, J;
Lindenlaub, I;
(2019)
Unemployment Cycles.
American Economic Journal: Macroeconomics
, 11
(4)
pp. 175-234.
10.1257/mac.20180105.
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Abstract
The labor market by itself can create cyclical outcomes, even in the absence of exogenous shocks. We propose a theory in which the search behavior of the employed has profound aggregate implications for the unemployed. There is a strategic complementarity between active on-the-job search and vacancy posting by firms, which leads to multiple equilibria: in the presence of sorting, active on-the-job search improves the quality of the pool of searchers. This encourages vacancy posting, which in turn makes costly on-the-job search more attractive — a self-fulfilling equilibrium. The model provides a rationale for the Jobless Recovery, the outward shift of the Beveridge curve during the boom and for pro-cyclical frictional wage dispersion. Central to the model's mechanism is the fact that the employed crowd out the unemployed when on-the-job search picks up during recovery. We also illustrate this mechanism in a stylized calibration exercise.
| Type: | Article |
|---|---|
| Title: | Unemployment Cycles |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1257/mac.20180105 |
| Publisher version: | https://doi.org/10.1257/mac.20180105 |
| Language: | English |
| Additional information: | This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | On-The-Job Search, Strategic Complementarity, Multiplicity, Unemployment Cycles, Sorting, Mismatch, Job-To-Job Flows, Jobless Recovery, Beveridge Curve Shift |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL SLASH UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10084332 |
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