Uncertainty and Labor Market Fluctuations

Jo, Soojin; Lee, Justin J.

doi:10.24149/wp1904

Working Paper

Uncertainty and Labor Market Fluctuations

Abstract: We investigate how a macroeconomic uncertainty shock affects the labor market. We focus on the uncertainty transmission mechanism, for which we employ a set of worker flow indicators in addition to labor stock variables. We incorporate common factors from such indicators into a framework that can simultaneously estimate historical macroeconomic uncertainty and its impacts on the macroeconomy and labor market. We find firms defer hiring as the real option value of waiting increases. Moreover, significantly more workers are laid off while voluntary quits drop, suggesting other mechanisms such as the aggregate demand channel play a crucial role.

Keywords: Business cycle; Labor market; Uncertainty; Stochastic volatility;

JEL Classification: C32; D80; E24; E32;

https://doi.org/10.24149/wp1904