Labor-Market Volatility in the Search-and-Matching Model: The Role of Investment-Specific Technology Shocks
Articles
Overview
published in
publication date
- August 2010
start page
- 1509
end page
- 1527
issue
- 8
volume
- 34
Digital Object Identifier (DOI)
International Standard Serial Number (ISSN)
- 0165-1889
Electronic International Standard Serial Number (EISSN)
- 1879-1743
abstract
-
Shocks to investment-specific technology have been identified as a main source of U.S. aggregate output volatility. In this paper, we present a model with frictions in the labor market and
explore the contribution of these shocks to the volatility of labor
market variables, namely, unemployment, vacancies, tightness and the
job-finding rate. Thus, our paper contributes to a recent body of
literature assessing the ability of the search-and-matching model to
account for the large volatility observed in labor market variables. To
this aim, we solve a neoclassical economy with search and matching,
where neutral and investment-specific technologies are subject to
shocks. The three key features of our model economy are: (i) Firms are
large, in the sense that they employ many workers. (ii) Adjusting
capital and labor is costly. (iii) Wages are the outcome of an
intra-firm Nash-bargaining problem between the firm and its workers. In
our calibrated economy, we find that shocks to investment-specific
technology explain 40% of the observed volatility in U.S. labor
productivity. Moreover, these shocks generate relative volatilities in
vacancies and the workers' job finding rate which match those observed
in U.S. data. Relative volatilities in unemployment and labor market
tightness are 55% and 75% of their empirical values, respectively.