Job uncertainty and deep recessions
Ravn, Morten O.
Sterk, Vincent

Data: 2015
Resum: This paper proposes a theory in which aggregate shocks also produce idiosyncratic risk which in turn introduces a demand channel that we argue is relevant for understanding the Great Recession. We study a model in which households are subject to uninsurable idiosyncratic employment shocks, firms set prices subject to nominal rigidities, and the labor market is characterized by matching frictions and by downward inflexible wages. Higher risk of job loss and worsening job finding prospects during unemployment depress goods demand because of a precautionary savings motive amongst employed households. Lower goods demand produces a decline in job vacancies and the ensuing drop in the job finding rate in turn triggers higher precautionary saving setting in motion an amplification mechanism. The amplification mechanism is absent from standard macroeconomic models and depends on the combination of incomplete financial markets and frictional goods and labor markets. The model can account for key features of the Great Recession in response to the observed changes in the job separation rate and an increase in search efficiency heterogeneity estimated from the matching function. We argue that the latter shock is required to reconcile the large increase in the incidence of longer term unemployment observed during the Great Recession.
Resum: The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
Ajuts: European Commission 649396
Drets: Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, la comunicació pública de l'obra i la creació d'obres derivades, fins i tot amb finalitats comercials, sempre i quan es reconegui l'autoria de l'obra original. Creative Commons
Llengua: Anglès
Col·lecció: Barcelona Graduate School of Economics. ADEMU working paper series
Col·lecció: ADEMU Working Paper Series ; 30
Document: Working paper
Matèria: Job uncertainty ; Unemployment ; Incomplete markets

Adreça alternativa: https://hdl.handle.net/10230/27314


57 p, 801.6 KB

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 Registre creat el 2018-10-23, darrera modificació el 2022-07-09



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