Figure 3 - uploaded by Min Zhang
Content may be subject to copyright.
Source publication
As long as workers do not value their leisure much, the Mortensen-Pissarides search and matching model implies that unemployment and job vacancies would be much less responsive to changes in labor productivity than what we observe in the business cycles of the Canadian labor market. These findings parallel the work of Shimer (2005) for the United S...
Similar publications
We study whether labor market institutions matter for business cycles in 19 0ECD coun-tries. Institutions affect mainly the cyclical behavior of the real wage. Wage bargaining reforms increase the volatility of the real wage and increase its correlation with labor produc-tivity; Employment protection reforms increase the volatility of unemployment...
In the context of a frictional model of the labor market with o¤ and on the job search, I advance a novel model of wage determination where contracts are non-binding and …rms have private information about the productivity of labor. The characterization of the intra-…rm bargaining game leads to a reduced-form model where the …rm chooses the wage su...
The fraction of the labor force under 35, or youth share, has been correlated with cyclical GDP volatility over the past several decades. The youth share and business cycle fluctuations were high during the 1970s. Then, as the population aged, output volatility declined. I develop an overlapping generations model featuring search frictions and prod...
I develop a business cycle matching model with heterogeneous workers and jobs, which helps understand the role of skill-mismatch on labor productivity and across-skill unemployment dy- namics. I focus on the skill-mismatch that takes the form of high-skilled workers transitorily accepting low-skill jobs, thereby influencing the labor market prospec...
Using a longitudinal matched employer-employee dataset for Portugal over the 1986-2007 period, this study analyzes the wage responses to aggregate labor market conditions for newly hired workers and existing workers within the same firm. Accounting for worker, firm, and job title heterogeneity, the data support the hypothesis that entry wages are m...
Citations
... Данная статья, опубликованная в 1985 г., породила серию исследований, посвященных анализу динамического рынка труда, часть из которых решает задачу проведения межстранового анализа. Например, в работе Мина Чжана [Zhang, 2008] сравниваются показатели Канады и США по ежеквартальным данным за 1962-2003 гг., а в работе Малгожаты Скибински [Skibińska, 2015] -показатели стран Центральной и Восточной Европы со странами Еврозоны на базе ежеквартальных данных за 1997−2013 гг. ...
The article presents the results of a comparative analysis of the dynamics of trend-cycles of macroeconomic indicators of the Russian and foreign labor markets for the period from the I quarter 2003 to the IV quarter 2015. The work analyzes fluctuations in the trend-cycles of the following indicators: the level of participation in the workforce (level of EAP), the level of employment and unemployment measured by the ILO methodology. As foreign labor markets, 25 OECD countries are taken. Correlation coefficients between all the labor markets examined for these indicators were estimated. In addition, fluctuations in trend-cycles of indicators are ranked according to the degree of sensitivity to the crisis phenomena of 2008. It is established that the Russian labor market was not characterized by non-standard reactions in comparison with foreign labor markets, including in response to the crisis events of 2008. In this regard, the hypothesis of a “special model” of the Russian labor market has not been confirmed.
... The elasticity parameter of the matching function and bargaining power parameter of workers are set at 0.46, following common practice in the literature. Zhang (2008) equalizes those parameters by invoking the rule in Hosios (1990) The remaining parameters are calibrated to minimize the sum of the squared distance between the target moments in the data and corresponding statistics in the model. All parameters being assumed to be constant across the aforementioned periods, the price of ICT investment goods alone causes the transition from the pre-to post-shock steady state. ...
... The unemployment rates for the skilled and unskilled labor forces are exploited to fix the scale of matching technology (µ s , µ u ), the investment-value added ratio to determine the capital contribution parameter γ in the production technology. The replacement ratio, which is set at 0.6 following Zhang (2008), determines the value of the unemployment benefit b. ...
This paper develops a multi-sector job search model with college eduction as noisy signals on workers' qualification for skilled tasks to analyze the underlying channel of 'degree-inflation,' measured by the proportion of highly educated workforce employed at unskilled positions (i.e., cross-skill matches). It demonstrates that the recent information and communication technology progress without corresponding improvement of workers' qualification, generates a considerable mass of cross-skill matches, which crowds out the unskilled workforce and suppress unskilled wages. As a result, the college premium remains substantial and the college enrollment rate is self-reinforced. The numerical experiments based on the Canadian data from early 1980s to 2000s suggest that without degree inflation, the unskilled, skilled, and overall wages in the Canadian labor market would be higher by (upto) 46, 43, and 56 percent, respectively, in early 2000s. For this extent, resolving the degree inflation problem, for example, through improving the quality of higher education, would induce substantial welfare gains to not only skilled workers but also unskilled workers.
... The elasticity of matches to unemployment, σ m , is set to 0.5, the midpoint of values typically used. Following the suggestion of Zhang (2008), the job-separation rate, 1 − ρ, is set to 0.09, matching the average job duration of 2.8 years in Canada; the job-finding rate s l is set to 0.927, matching the fact that one-third of the unemployed workers find jobs within one month. Following Zhang (2008), the mean of market tightness is normalized to 1, which implies that the value of µ m in the matching function equals the quarterly job-finding rate. ...
... Following the suggestion of Zhang (2008), the job-separation rate, 1 − ρ, is set to 0.09, matching the average job duration of 2.8 years in Canada; the job-finding rate s l is set to 0.927, matching the fact that one-third of the unemployed workers find jobs within one month. Following Zhang (2008), the mean of market tightness is normalized to 1, which implies that the value of µ m in the matching function equals the quarterly job-finding rate. Following Gertler, Sala and Trigari (2008), I expressb, the steady-state flow value of unemployment, asb =b(p l + κ 2 ...
What are the effects of financial market imperfections on unemployment and vacancies in Canada? The author estimates the model of Zhang (2011) – a standard monetary dynamic stochastic general-equilibrium model augmented with explicit financial and labour market frictions – with Canadian data for the period 1984Q2–2010Q4, and uses it to examine the importance of financial shocks on labour market fluctuations in Canada. She finds that the estimated value of the elasticity of external finance, the key parameter capturing financial frictions, is much higher than the value suggested in the literature. This gives rise to a larger amplification effect from the financial accelerator mechanism, which helps the model generate a more volatile labour market. The author finds that the model accounts well for the cyclical behaviour of unemployment and vacancies observed in the data. She also finds that financial shocks are one of the main sources of fluctuations in the Canadian labour market. Overall, financial shocks contribute about 30 per cent of the fluctuations in unemployment and vacancies for the Canadian economy.
... Thus, the model with endogenous separation generates more responses than one with exogenous separa- 1 Although a large number of related studies has emerged to address this challenge, there has been a few studies which examine whether this failure of the MP model can be observed in other countries as well. See Burgess and Turon (2005) and Zhang (2008). 2 Den Haan, Ramey and Watson (2000) demonstrate that interaction between capital investment and job destruction plays an important role in propagating shocks in the RBC model. ...
This paper studies the role of capital investment in a search and matching model. I develop an endogenous job separation matching model in which a firm's capital investment decision is endogenously determined. The incorporation of capital investment provides an additional channel for firms to respond to productivity shocks, significantly magnifying labor market fluctuations. The numerical results demonstrate that the incorporation of capital investment improves the ability of the standard search and matching model to generate cyclical fluctuations of unemployment and vacancies in response to productivity shocks. Moreover, my model can generate the pro-cyclicality of vacancies, which the standard endogenous separation models often fail to generate.
... Shimer (2005) demonstrates that the MP model cannot generate the observed unemployment and vacancy ‡uctuations in response to productivity shocks of reasonable size. In the literature, many solutions have been proposed to solve this problem. 1 However, there have been only a few studies to examine whether this failure of the MP model can be observed in other countries as well (Burgess and Turon, 2005;Zhang, 2008). Especially, there has been no study on the Japanese labor market case. ...
This paper studies whether the Mortensen and Pissarides (MP) search and matching model can explain the observed labor market fluctuations in Japan. To do this, this study firstly establishes a number of key facts about the cyclical properties of the Japanese labor market. Although the standard MP model correctly predicts the observed regularities in the cyclical fluctuations of unemployment and job vacancies, it cannot generate the observed unemployment and vacancy fluctuations in response to productivity shock of reasonable size. This paper extends the matching model by incorporating firm-specific training costs whose role is emphasized in the Japanese labor market. Relative to the standard MP model, the extended model generates larger cyclical fluctuations in unemployment and job vacancies. However, it still falls short of what observed in the Japanese data.
... See, for instance,Zhang (2008). ...
... • Begin by finding the surplus functions S P , S R and S T using value function iteration in equations (13), (14), and (15). ...
We construct and estimate a theory in which employers choose to offer workers contracts with different firing conditions. In a labor market characterized by search and matching frictions, firms find optimal to offer some workers a contract in which firing is costly -we label this a permanent contract, while offering other workers the alternative -temporary -contract in which dismissal is free. The trade-off a firm faces is to offer a temporary contract to a worker with a good match-specific value at the risk of losing the worker if she finds a better match; or offering a permanent contract when firing is costly to a worker with a low match-specific value. We analytically characterize a cut-off rule which determines the type of contract offered. We use matched employer-employee data from Canada to structurally estimate the model and decompose the wage distribution into search and matching frictions, workers' and firms' characteristics, and types of contracts signed.
... More recently, a similar di¢culty is found in the Mortensen-Pissarides search and matching model. Several authors, including Hornstein et al. (2005), Costain and Reiter (2008), and Zhang (2008), criticize that the calibration strategy argued by Hagedorn and Manovskii (2008) brings up some problems with the standard model although it …xes the volatility puzzle. Particularly, the high value of non-market activities required to generate labor market cycles observed in the United States induces dramatic responses of unemployment to labor policy changes. ...
... As detailed in Zhang (2008), the transition matrix governing this process is fully determined by two parameters: the step size of a transition ; and the probability that a transition occurs : The parameters r and are picked to …t the moments of the quarterly average of monthly productivity, namely the standard deviations 0:020 and the autocorrelation 0:878: Table 11 Baseline Parameterization ...
... In particular, we examine if the similar labor market cycles experienced in the two countries can be generated with reasonably similar values of leisure. This proves to be an insurmountable challenge for the standard version of the Mortensen-Pissarides model where entitlement to UI does not need to be earned (see Zhang, 2008). The reason for this di¢ culty is that Canada has both higher taxes and UI bene…ts than the United States, which is inconsistent in those models with the similar amplitude of the cycles experienced by unemployment and vacancies. ...
If entitlement to UI benefits must be earned with employment, generous UI is an additional benefit to an employment relationship, so it promotes job creation. If individuals are risk neutral, UI is fairly priced, and the UI system prevents moral-hazard unemployed workers, the generosity of UI has no effect on unemployment. As with Ricardian Equivalence, this result should be useful to pinpoint the effects of UI to violation of its premises. In itself, the endogenous entitlement of UI benefits does not resolve if the Mortensen-Pissarides model is able to generate realistic cycles. However, it brings some insights into this debate: The widespread concern in the design of UI systems to minimize moral-hazard unemployment only makes sense if workers have sufficiently high values of leisure (80 percent of labor productivity in our baseline calculation for the United States). The fact that the generosity of UI has potentially a small effect on unemployment reconciles a high response of unemployment to changes in labor productivity with a small response to changes in UI benefits.
... More recently, a similar di¢ culty is found in the Mortensen-Pissarides search and matching model. Several authors, including Hornstein et al. (2005), Costain and Reiter (2008), and Zhang (2008), criticize that the calibration strategy argued by Hagedorn and Manovskii (2008) brings up some problems with the standard model although it …xes the volatility puzzle. Particularly, the high value of non-market activities required to generate labor market cycles observed in the United States induces dramatic responses of unemployment to labor policy changes. ...
... where p is the mean of p and is determined by targeting the normalized median ofp; y is a zero mean random variable that follows an eleven-state symmetric Markov process in which transitions only occur between contiguous states. As detailed in Zhang (2008), the transition matrix governing this process is fully determined by two parameters: the step size of a transition r; and the probability that a transition occurs : The parameters r and are picked to …t the moments of the quarterly productivity, namely the standard deviations 0:020 and the autocorrelation 0:878: For the parameters of the UI program, the calibrations aim to be consistent with the average time it takes for a worker to gain UI eligibility, the average duration of UI bene…ts and the average actual replacement rates of UI bene…ts. In the United States, UI eligibility takes around 20 weeks of work and the maximum duration of bene…ts is around 24 weeks. ...
... In the United States, UI eligibility takes around 20 weeks of work and the maximum duration of bene…ts is around 24 weeks. 15 The actual replacement ratio (b=w) is measured as the ratio of the average weekly UI bene…ts paid to the eligible unemployed workers over the average weekly insurable earnings paid to the employed workers, which is around 0:357 over the period of 1972-2003 as reported in Zhang (2008). So b=w = 0:357: Finally, the values of e are assumed to be the same and be proportionate to wages in all the simulations for reasons of simplicity, so = 0 = 1 : 16 The parameter is interpreted as a general tax including the UI contribution fees and is determined to target the general tax burden relative to GDP, which is = 30%: 17 So, the government is using a large fraction of e to 14 The choice of the distribution does not a¤ect the main qualitative results in this paper. ...
This paper shows that the Mortensen-Pissarides search and matching model can be successfully parameterized to generate observed large cyclical fluctuations in unemployment and modest responses of unemployment to changes in unemployment insurance (UI) benefits. The key features behind this success are the endogenous eligibility for UI benefits and the heterogeneity of workers. With the linear utilities commonly assumed in the Mortensen-Pissarides model, a fully rated UI system designed to prevent moral hazard has no effect on unemployment. However, the UI system in the United States is neither fully rated nor able to prevent workers with low productivity from quitting their jobs or rejecting employment offers to collect benefits. As a result, an increase in UI generosity has a positive, but realistically small, effect on unemployment. This paper answers the Costain and Reiter (2008) criticism to the Hagedorn and Manovskii (2007) strategy of adopting a high value of non-market activities to generate realistic business cycles with the Mortensen-Pissarides model.
