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EFFECTS OF EXTENDED UNEMPLOYMENT INSURANCE BENEFITS ON LABOR DYNAMICS
Abstract
We calculate that the extension of unemployment insurance benefits during downturns has significantly increased the variability of unemployment and vacancies in the United States. Taking this into account reduces the value of leisure necessary to match the wide labor market business cycles experienced in the United States using the Mortensen--Pissarides model. For this calculation, we analyze a version of the model where unemployment insurance benefits not only expire but must be earned with prior employment. With these features, we can calibrate the model to be consistent with unemployment responding strongly to productivity shocks and mildly to changes in unemployment insurance policies. Our preferred calibration predicts that the standard deviation of unemployment since 1945 would have fallen by around 37% if there had not been programs extending unemployment benefits during recessions. We also find that the enactment of the Emergency Unemployment Compensation program in 2008 increased the unemployment rate by 0.5 percentage points.
... exactly the timing of UI extensions like in theirs, it can match quite well most of the characteristics in the labour markets usually associated with the UI duration policy, whilst preserving the agents' rational expectation. Faig et al (2012) let the UI duration policy vary with aggregate TFP shocks instead of unemployment rates like in this paper. ...
... Transition Rates I obtain the monthly job finding rates and job destruction rates as is done in Shimer (2005) without correcting for time aggregation bias. 22 As converting the monthly turnover rates to quarterly ones by simply computing a quarterly average would 20 The series IDs are respectively LNS13000000 and LNS11000000. 21 The series ID for labour productivity is PRS85006163. ...
... Further, amongst the insured unemployed, their job search effort decreases in the amount of benefit they receive as shown in the left panel of Figure 3.20. With regards to the worker heterogeneity, higher productivity workers exert more search effort as their value during employment is relatively higher than the lower productivity type (right panel 20 I choose June 2010 because it is when the model's long-term unemployment rate reaches its peak. Additionally, the model generates a hump in the distribution in 2010 similar to the empirical distribution owing to the endogenous separation margin. of Figure 3. 20). ...
This thesis consists of three chapters on the general equilibrium effects of unemployment insurance (UI) extensions on the macroeconomy. In Chapter 2, I quantify the effects of the increasing maximum UI duration during recessions on the drop in the correlation between output and labour productivity in the US since the early 1980’s. Using a search and matching model with stochastic UI duration, heterogeneous match quality, variable search intensity and on-the-job search, I find that the model can explain over half of this drop. In Chapter 3, I investigate the impact of UI extensions on the incidence of long-term unemployment and on the unemployment duration distribution in the US. I extend the model in Chapter 2 by allowing for further worker heterogeneity and for UI benefits to depend on match quality during employment. I demonstrate that eliminating all UI extensions during the Great Recession could lower the (long-term) unemployment rate by 0.9-3.4 (4) percentage points and the average unemployment duration by 27 weeks. Once UI statuses and benefit levels are accounted for, unobserved heterogeneity of workers does not account for much of the incidence of long-term unemployment. In Chapter 4, I study the role of worker’s UI history and the responses of unemployment and its duration structure to UI extensions. Building on the model in Chapter 3, I consider three unemployment statuses: insured, formerly insured and uninsured (who never received UI). To make the model empirically consistent, I introduce a drop in job search efficiency amongst the insured unemployed workers. This feature increases the persistence of unemployment, average unemployment duration and long-term unemployment, and moderates their responses to UI extensions. Comparing to Chapter 3, the effects of removing UI extensions during the Great Recession on the unemployment duration is revised downwards to a 24-week reduction. Finally, this extension removal improves welfare but the gain subsides as the economy recovers.
... where φ L < φ H implying that the UI exhaustion rate is a decreasing function of the unemployment rate u t in the economy. 13 Since the inverse of φ (u t ) is the expected duration of receiving UI benefits, a fall in the rate implies a UI extension. This is set to mimic the rules for UI extensions in the US where they depend on the state unemployment rate (above which UI extensions are triggered). ...
... 14 I can capture the observed increase in the generosity of UI extensions in the US by lowering in the value that φ L takes. Economic agents can predict whether a UI 13 This stochastic UI exhaustion is first used in Fredericksson and Holmlund (2001). Rujiwattanapong (2019) allows the UI exhaustion rate to vary with the unemployment rate. ...
... This is set to mimic the rules for UI extensions in the US where they depend on the state unemployment rate (above which UI extensions are triggered). 13 I can capture the observed increase in the generosity of UI extensions in the US by lowering in the value that φ L takes. Economic agents can predict whether a UI extension will be triggered/terminated next period by keeping track of unemployment and relevant distributions. ...
... This stochastic UI exhaustion is first used in Fredericksson and Holmlund (2001). Mitman and Rabinovich (2014), Faig, Zhang and Zhang (2016), and Rujiwattanapong (2017) treat this rate to be state-dependent.13 Specifically, during normal times (u t <ū), the UI exhaustion rate is φ H which is set to imply a standard UI duration of 26 weeks. ...
This paper investigates the impact of endogenous unemployment insurance (UI) extensions on the dynamics of unemployment and its duration structure in the US. Using a search and matching model with worker heterogeneity, I allow for the maximum UI duration to depend on unemployment and for UI benefits to depend on worker characteristics. UI extensions have a large effect on long-term unemployment during the Great Recession via job search responses and a moderate effect on total unemployment via job separations. Disregarding rational expectations about the timing of UI extensions implies an overestimation of the unemployment rate by over 2 percentage points.
... Although the model in this paper may not be able to replicate exactly the timing of UI extensions like in theirs, it can match quite well most of the characteristics in the labour markets usually associated with the UI duration policy whilst preserving the agents' rational expectation. I assume the UI duration policy varies with the unemployment rate instead of the aggregate total factor productivity like in Faig et al. (2012). Whilst this offers a more accurate length of UI extensions (since unemployment tends to be more persistent than does the total factor productivity), the model is computationally more difficult to solve since the entire distribution of workers by employment status and heterogeneous match quality becomes a state variable. ...
... Further, it becomes unmatched when its worker takes up a new job offer. 11 The producing firm can walk away from the match if desired at the end of period. An unmatched firm posts a vacancy to attract job searchers. ...
This paper quantifies the effects of the increasing maximum unemployment insurance (UI) duration during recessions on the drop in the correlation between output and labour productivity in the U.S. since the early 1980’s - the so-called productivity puzzle. Using a general equilibrium search and matching model with stochastic UI duration, heterogeneous match quality, variable search intensity and on-the-job search, I demonstrate that the model can explain over 40 percent of the drop in this correlation (28 percent when the Great Moderation is taken into account). More generous UI extensions during recent recessions cause workers to be more selective with job offers and lower job search effort. The former channel raises the overall productivity in bad times. The latter prolongs UI extensions since in the U.S. they are triggered by high unemployment.
... They find that the model with extensions explains 61 percent of unemployment fluctuations, while the model without extensions explains 30 percent. In an earlier contribution,Faig, Zhang and Zhang (2016) found that benefit extensions contributed to a 37 percent increase in unemployment volatility since 1945 and increased unemployment by 0.5 percentage points during the Great Recession, via a mechanism similar to that inMitman and Rabinovich (2020).9 In separate work, McKay and Reis (2021) study the role of aggregate demand and aggregate fluctuations for the optimal time-invariant benefit level. ...
We study the stabilizing role of unemployment benefit extensions. We develop a tractable quantitative model with heterogeneous agents, search frictions, and nominal rigidities. The model allows for both a stabilizing aggregate demand channel and a destabilizing labor market channel of unemployment insurance. We characterize analytically the workings of each channel. Stabilizing aggregate demand effects marginally prevail in the U.S. economy and the unprecedented benefit extensions introduced during the Great Recession played a limited role for unemployment dynamics. Instead, unemployment from the model tracks actual unemployment with a combination of labor market shocks and a shock to the consumers' borrowing capacity.
This paper quantifies the effects of the increasing maximum unemployment insurance (UI) duration during recessions on the drop in the correlation between output and labour productivity in the U.S. since the early 1980's - the so-called productivity puzzle. Using a general equilibrium search and matching model with stochastic UI duration, heterogeneous match quality, variable search intensity and on-the-job search, I demonstrate that the model can explain over 40 percent of the drop in this correlation (28 percent when the Great Moderation is taken into account). More generous UI extensions during recent recessions cause workers to be more selective with job offers and lower job search effort. The former channel raises the overall productivity in bad times. The latter prolongs UI extensions since in the U.S. they are triggered by high unemployment.
This paper derives the optimal unemployment insurance (UI) transfer scheme, UI benefits, and UI contribution fees: When a worker has to earn his or her UI eligibility through work, the UI benefits do not last forever, and the UI agency has imperfect monitoring power on the strategic behavior of the worker. We show that the consideration of the UI eligibility rule generates the effective entitlement effect, which serves as an additional incentive device and alters the nature of the optimal UI transfer scheme established in literature. In contrast with previous studies, we find that when the effective entitlement effect is large, it completely removes the moral hazards in job searches, job acceptances, and job quits. As a result, the optimal UI benefits and contribution fees become constant. Calibrated to the data in the United States, the model reproduces some key features of the existing UI system.
Current Population Survey (CPS) data over the period from 1994 to 2008 show that inflation has a positive effect on the residual wage dispersion. To explain this phenomenon, we introduce uncoordinated job searches into a general equilibrium monetary search framework. Our model shows that the uncoordinated job searches by unemployed workers give rise to an equilibrium, where a firm is matched with zero, one, or multiple job applicants. The ex post difference in matching probabilities generates a two-point wage dispersion among identical workers, when the Mortensen rule is implemented in the wage-determination process. In our model, inflation positively influences the wage dispersion directly through its impact on firm's real profit and indirectly through the effect of inflation that spills over from the goods market to the labor market. With reasonable parameter values, the calibrated model can account for most of the observed responses of residual wage dispersion to inflation.
This paper extends the Diamond-Mortensen-Pissarides (DMP) matching model with endogenous job destruction by introducing post-match labor turnover costs (PMLTC). We consider training and separation costs which create heterogeneity among workers. In particular, there are two types of employed workers: (i) new entrants who need training in order to become fully productive, and (ii) incumbents who are fully productive and whose departure from the firm imposes costs on it. We find that our calibrated model, relative to the standard DMP model, comes closer to the data regarding the volatility of vacancies and unemployment without introducing unrealistic sensitivity to policy changes. Moreover, our extended model nearly reproduces the downward-sloping Beveridge curve, which is unusual when there exists endogenous job destruction in this type of models.
The recent decline in the unemployment insurance (UI) takeup rate has puzzled researchers. Using administrative data with accurate information on the potential level and duration of benefits, the authors examine whether a separating employee receives UI. They find a strong positive effect of the benefit level on takeup, and smaller effects of the potential duration and the tax treatment of benefits. Simulations indicate that the recent inclusion of UI in the income tax base can account for most of the previously unexplained decline in UI receipt. Copyright 1997, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
This paper explores the recent decline in the fraction of unemployed workers who receive unemployment insurance benefits.
Using March Current Population Surveys, we compare the fraction who are potentially eligible for benefits with the fraction
who receive them. The decline in insured unemployment is almost entirely due to a decline in the early 1980s in the takeup
rate for benefits. We analyze the determinants of the takeup rate, using both aggregated state-level data and micro-data.
At least half the decline is due to an increasing share of unemployment in states with lower takeup rates.
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 States. The combined data from both countries present an additional difficulty for the model. Even if the unobserved value of leisure is allowed to be as high as required to fit the business cycle in the United States or in Canada, as proposed by Hagedorn and Manovskii (2007), another failure arises. The model lacks ability to reconcile the similar labor cycles with the large policy differences in the UI benefits and income taxes in the two countries when the value of leisure is assumed to be the same in both countries.
I study a budget-constrained, private-valuation, sealed-bid sequential auction with two incompletely-informed, risk-neutral bidders in which the valuations and income may be non-monotonic functions of a bidder's type. Multiple equilibrium symmetric bidding functions may exist that differ in allocation, efficiency and revenue. The sequence of sale affects the competition for a good and therefore also affects revenue and the prices of each good in a systematic way that depends on the relationship among the valuations and incomes of bidders. The sequence of sale may affect prices and revenue even when the number of bidders is large relative to the number of goods. If a particular good, say [alpha], is allocated to a strong bidder independent of the sequence of sale, then auction revenue and the price of good [alpha] are higher when good [alpha] is sold first.
This paper examines unemployment duration and the incidence of claims following a 36 percent increase in the maximum weekly benefit in New York State. This benefit increase sharply increased benefits for a large group of claimants, while leaving them unchanged for a large share of claimants who provide a natural comparison group. The New York benefit increase has the special features that it was unexpected and applied to in-progress spells. These features allow the effects on duration to be convincingly separated from effects on incidence. The results show a sharp fall in the hazard of leaving UI that coincides with the increase in benefits. The evidence is also consistent with a substantial effect of the benefit level on the incidence of claims and with this change in incidence biasing duration estimates. The evidence further suggests that, at least in this case, standard methods that identify duration effects through nonlinearities in the benefit schedule are not badly biased.
When a job-seeker and an employer meet, find a prospective joint surplus, and bargain over the wage, conditions in the outside labor market, including especially unemployment, may have limited influence. The job-seeker's only credible threat during bargaining is to hold out for a better deal. The employer's threat is to delay bargaining. Consequently, the outcome of the bargain depends on the relative costs of delays to the parties, rather than on the payoffs that result from exiting negotiations. Modeling bargaining in this way makes wages less responsive to unemployment. A stochastic model of the labor market with credible bargaining and reasonable parameter values yields larger employment fluctuations than does the standard Mortensen-Pissarides model. (JEL J22, J23, J31, J64)
This paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations. The paper particularly studies individual behavior during the weeks just prior to when benefits lapse. Higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment. However, the probability of leaving unemployment rises dramatically just prior to when benefits lapse. Individual data are used with accurate information of spell durations, and the level and length of benefits. The semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics. Copyright 1990 by The Econometric Society.
Unemployment
Michael Burda
The sustained increase in unemployment rates in Western Europe is a major policy problem, not least because of the increasing significance of long-term unemployment. A large part of cross-country differences in long-term unemployment rates can be predicted by a simple model of ‘wait unemployment’. Potential workers may refuse low-paying jobs and invest in unemployment if this increases the chance that they will subsequently be offered a higher-paying job. This investment decision is sensitive both to the level of unemployment benefit and to its duration and coverage of the labour force.
More generous unemployment benefit will tend to increase average unemployment rates. The analysis can also explain how increases in the labour force contribute to unemployment, and why service sector employment has grown more slowly in Europe than in the US over the past 15 years. Unemployment benefit is not set in a vacuum; the paper also considers forces governing the evolution of benefit rates and entitlements during the period.
The aim of this paper is to study the optimal duration of unemployment benefit entitlement across the business cycle. We analyze whether the entitlement duration should be prolonged in bad and shortened in good times. Because of consumption smoothing, such a countercyclical policy can be welfare-enhancing as long as it does not affect labor market adjustment too severely and/or as long as it can even help to reduce inefficiencies there. If, however, the labor market is already quite inflexible, procyclical behavior may be preferable. In a calibrated dynamic business cycle framework, we find that countercyclical benefit entitlement duration may be preferable in the United States but not in Europe.
Unemployment
Christopher Pissarides
This paper uses data on unemployment flows and job vacancies to shed light on the phenomenal rise of unemployment in Britain, from under 3% in the 1960s to over 15% (male) unemployment in the 1980s. It finds that most of the rise is due to a fall in the demand for labour. A more expansionary fiscal policy and improved international competitiveness would have ameliorated this fall. Some of the fall, however, can also be attributed to supply pressure, which stopped wages from falling fast enough. Social security and a more relaxed attitude by the state in the provision of unemployment and supplementary benefits also contributed to the rise in unemployment, by making workers more choosey.
The paper investigates whether it is possible for any given set of underlying factors to give rise to more than one equilibrium unemployment rate. If so, a temporary stimulus might release the economy from a low-level equilibrium. However the conditions necessary for this do not appear to hold in practice. Thus fiscal and monetary policy can permanently affect unemployment only if they can permanently alter aggregate demand.
Microeconomic policy, like marginal employment subsidies, can, however, have a permanent effect on unemployment and the paper investigates whether there are any grounds for wishing to use such policy tools to alter the free-market equilibrium unemployment rate. There is evidence that the allocation of workers to jobs is done more efficiently at a fairly high level of overall labour demand. It follows that, unless job vacancies exceed unemployment, job creating policy measures will be beneficial.
In response to the Great Recession and sustained labor market downturn, the availability of unemployment insurance (UI) benefits was extended to historical highs in the United States. We exploit variation in the timing and size of UI benefit extensions across states to estimate the overall impact of these extensions on unemployment duration, comparing the experience with the prior extension of benefits during the much milder downturn in the early 2000s. Using monthly matched individual data from the U.S. Current Population Survey (CPS) for the periods 2000-2005 and 2007-2012, we estimate the effects of UI extensions on unemployment transitions and duration. We rely on individual variation in benefit availability based on the duration of unemployment spells and the length of UI benefits available in the state and month, conditional on state economic conditions and individual characteristics. We find a small but statistically significant reduction in the unemployment exit rate and a small increase in the expected duration of unemployment arising from both sets of UI extensions. The effect on exits and duration is primarily due to a reduction in exits from the labor force rather than a decrease in exits to employment (the job finding rate). The magnitude of the overall effect on exits and duration is similar across the two episodes of benefit extensions. Although the overall effect of UI extensions on exits from unemployment is small, it implies a substantial effect of extended benefits on the steady-state share of unemployment in the cross-section that is long-term.
This paper attempts to quantify the effects of extended unemployment insurance benefits in recent years. Using the monthly Current Population Survey, I estimate unemployment-to-employment (UE) hazard function and unemployment-to-inactivity (UN) hazard function for male workers. The estimated hazard functions for the pe-riod of 2004-2007, during which no extended benefits were available, exhibit patterns consistent with the expiration of regular benefits at 26 weeks. These patterns largely disappear from the hazard functions for the period of 2009-2010, during which large-scale extended benefits had become available. I conduct counterfactual experiments in which the estimated hazard functions for 2009-2010 are replaced by the counterfactual hazard functions whose patterns are inferred from those for the 2004-2007 period. The experiments suggest that extended benefits in recent years have raised male workers' unemployment rate by 1.2 percentage points with a 90% confidence interval of 0.8 to 1.8 percentage points. The increases in the unemployment rate largely come from the effects on the UE hazard function rather than the UN hazard function.
Nearly two years after the official end of the "Great Recession," the labor market remains historically weak. One candidate explanation is supply-side effects driven by dramatic expansions of Unemployment Insurance (UI) benefit durations, to as many as 99 weeks. This paper investigates the effect of these UI extensions on job search and reemployment. I use the longitudinal structure of the Current Population Survey to construct unemployment exit hazards that vary across states, over time, and between individuals with differing unemployment durations. I then use these hazards to explore a variety of comparisons intended to distinguish the effects of UI extensions from other determinants of employment outcomes.The various specifications yield quite similar results. UI extensions had significant but small negative effects on the probability that the eligible unemployed would exit unemployment, concentrated among the long-term unemployed. The estimates imply that UI benefit extensions raised the unemployment rate in early 2011 by only about 0.1-0.5 percentage points, much less than is implied by previous analyses, with at least half of this effect attributable to reduced labor force exit among the unemployed rather than to the changes in reemployment rates that are of greater policy concern.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
This article analyzes what is behind the recent unprecedented rise in long-term unemployment and explains what this rise might imply for the economy going forward. In particular, the authors attribute the sharp increase in unemployment duration in 2009 to especially weak labor demand and, to a lesser degree, extensions in unemployment insurance benefits.
If entitlement to UI benefits must be earned with employment, generous UI is an additional benefit to working, so, by itself, it promotes job creation. If individuals are risk neutral, then there is a UI contribution scheme that eliminates any effect of UI on employment decisions. As with Ricardian Equivalence, this result should be useful to pinpoint the effects of UI to violations of its premises. Our baseline simulation shows that if the neutral contribution scheme derived in this paper were to be implemented, the average unemployment rate in the United States would fall from 5.7 to 4.7 percent. Also, the results show that with endogenous UI eligibility, one can simultaneously generate realistic productivity driven cycles and realistic responses of unemployment to changes in UI benefits. (Copyright: Elsevier)
The potential welfare benefits of unemployment insurance, along with the optimal replacement ratio, are studied using a quantitative dynamic general equilibrium model. To provide a role for unemployment insurance, agents in the authors' economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets. In the absence of moral hazard, replacement ratios as high as 0.65 are optimal and the welfare benefits of unemployment insurance are quite large. However, if there is moral hazard and the replacement ratio is not set optimally, the economy can be much worse-off than it would be without unemployment insurance. Copyright 1992 by University of Chicago Press.
[eng] We present a two-sided search model where agents differ by their human capital endowment and where workers of different skill are imperfect substitutes. Then the labor market endogenously divides into disjoint segments and wage inequality will depend on the degree of labor market segmentation. The most important results are : 1) overall wage inequality as well as within-group and between-group inequalities increase with relative human capital inequality ; 2) within-group wage inequality decreases while between-group and overall wage inequalities increase with the efficiency of the search process ; 3) within-group, between-group and overall wage inequalities increase with technological changes. [fre] Immigration et justice sociale. . Cet article est d�di� � la m�moire d'Yves Younes qui nous a quitt�s en mai 1996, et dont les derni�res r�flexions sur l'importance du ph�nom�ne migratoire dans les �tats-Unis des ann�es 1980-1790 m'ont beaucoup influenc�.. L'ouverture des fronti�res entre le Nord et le Sud peut-elle se retourner contre les plus d�favoris�s du monde, c'est-�-dire les non-qualifi�s du Sud ?. Avec deux facteurs de production, les migrations Sud-Nord b�n�ficient tou�jours aux moins qualifi�s du Sud, puisqu'ils y sont le facteur le plus abondant. Mais avec trois facteurs de production (trois niveaux de qualifications, ou deux niveaux et un facteur capital imparfaitement mobile), l'ouverture des fronti�res peut conduire � une baisse du salaire des moins qualifi�s du Sud si leur compl�mentarit� avec le travail tr�s qualifi� ou le capital du Nord est suffisamment faible compar�e � celle des sudistes plus qualifi�s.. Plusieurs �tudes r�centes sugg�rent effectivement que les �lasticit�s de compl�mentarit� chutent brutalement au-del� d'un certain �cart de qualification. Cependant, rien ne prouve que ces effets soient suffisamment forts pour que l'ouverture optimale des fronti�res du point de vue de la justice sociale
Shimer (2005a) argues that the textbook equilibrium search model of unemployment explains less than 10% of the volatility in U.S. vacancies and unemployment when fluctuations are driven by productivity shocks. His paper as well as other recent work inspired by it are reviewed and extended here. Although there seems to be excessive feedback from the job-finding rate to the wage built into the Nash bargaining mechanism assumed to determine wages in the model, we argue that he and others overemphasize the need for wage rigidity to explain the data on labor-market fluctuations. Indeed, a modified version of the model can explain the magnitude of the empirical relationship between the vacancy-unemployment ratio and labor productivity when wages are the outcome of a strategic bargaining game and when the elasticity of the matching function and the opportunity cost of a match are set at reasonable values. The modified model also explains almost two thirds of the volatility in the ratio relative to that of productivity when separation shocks are taken into account, as well as the strong negative correlation between vacancies and unemployment found in Shimer's data. (Copyright: Elsevier)
Following a recession, the aggregate labor market is slack–employment remains below normal and recruiting efforts of employers, as measured by help-wanted advertising and vacancies, are low. A model of matching friction explains the qualitative responses of the labor market to adverse shocks, but requires implausibly large shocks to account for the magnitude of observed fluctuations. The incorporation of wage stickiness vastly increases the sensitivity of the model to driving forces. I develop a new model of the way that wage stickiness affects unemployment. The stickiness arises in an economic equilibrium and satisfies the condition that no worker-employer pair has an unexploited opportunity for mutual improvement. Sticky wages neither interfere with the efficient formation of employment matches nor cause inefficient job loss. Thus the model provides an answer to the fundamental criticism previously directed at sticky-wage models of fluctuations.
Recently, a number of authors have argued that the standard search model cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies, given shocks of a plausible magnitude. We propose a new calibration strategy of the standard model that uses data on the cost of vacancy creation and cyclicality of wages to identify the two key parameters –- the value of nonmarket activity and the bargaining weights. Our calibration implies that the model is consistent with the data. (JEL E24, E32, J31, J63, J64)
This paper argues that the textbook search and matching model cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies in response to shocks of a plausible magnitude. In the United States, the standard deviation of the vacancy-unemployment ratio is almost 20 times as large as the standard deviation of average labor productivity, while the search model predicts that the two variables should have nearly the same volatility. A shock that changes average labor productivity primarily alters the present value of wages, generating only a small movement along a downward-sloping Beveridge curve (unemployment-vacancy locus). A shock to the separation rate generates a counterfactually positive correlation between unemployment and vacancies. In both cases, the model exhibits virtually no propagation.
I study a budget-constrained, private-valuation, sealed-bid sequential auction with two incompletely-informed, risk-neutral bidders in which the valuations and income may be non-monotonic functions of a bidder's type. Multiple equilibrium symmetric bidding functions may exist that differ in allocation, efficiency and revenue. The sequence of sale affects the competition for a good and therefore also affects revenue and the prices of each good in a systematic way that depends on the relationship among the valuations and incomes of bidders. The sequence of sale may affect prices and revenue even when the number of bidders is large relative to the number of goods. If a particular good, say [alpha], is allocated to a strong bidder independent of the sequence of sale, then auction revenue and the price of good [alpha] are higher when good [alpha] is sold first.
Federal Reserve Bank of San Francisco economic letter
- Valletta Robert
- Katherine Kuang
Income Distributional Implications of Unemployment Insurance and Social Assistance in the 1990s: A Micro-simulation Approach. Publication IN-AH-223E-11-95, Human Resources Development Canada
- Osberg Lars
- Shelley Phipps
How Did Unemployment Insurance Extensions Affect the Unemployment Rate in 2008-10? Federal Reserve Bank of Chicago economic letter 285
- Mazumder Bhashkar