Working Paper

Aggregate employment fluctuations with microeconomic asymmetries

Abstract: We provide a simple explanation for the observation that the variance of job destruction is greater than the variance of job creation. In our model profit maximization in the presence of proportional plant-level costs of job creation and destruction implies that shrinking plants are more sensitive than growing plants to aggregate shocks. We describe circumstances in which this microeconomic asymmetry is preserved in the aggregate and show that it can account for asymmetries in the variability of job creation and destruction of the kind observed in the U.S. manufacturing sector. This is so even though we abstract from job search and matching frictions, incomplete contracts, and aggregate congestion effects, all of which have been put forward as important for understanding the job creation and destruction evidence.

Keywords: Downsizing of organizations; Employment (Economic theory);

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series, Macroeconomic Issues

Publication Date: 1998

Number: WP-96-17