Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of San Francisco
Proceedings
Business volatility, job destruction and unemployment
Steven J. Davis
R. Jason Faberman
John Haltiwanger
Ron S. Jarmin
Javier Miranda
Abstract

Unemployment inflows fell from 4 percent of employment per month in the early 1980s to 2 percent or less by the mid 1990s and thereafter. U.S. data also show a secular decline in firm-level employment volatility and the job destruction rate. We interpret this decline as a decrease in the intensity of idiosyncratic labor demand shocks, a key parameter in search and matching models of frictional unemployment. According to these models, a lower intensity of idiosyncratic demand shocks produces less job destruction, fewer workers flowing through the unemployment pool and less frictional unemployment. To evaluate this theoretical mechanism, we relate industry-level unemployment flows from 1977 to 2005 to industry-level indicators for the intensity of idiosyncratic shocks. Unlike previous research, we focus on the lower frequency relationship of job destruction and business volatility to unemployment flows. We find strong evidence that declines in the intensity of idiosyncratic labor demand shocks drove large declines in the incidence of unemployment.


Download Full text
Cite this item
Steven J. Davis & R. Jason Faberman & John Haltiwanger & Ron S. Jarmin & Javier Miranda, "Business volatility, job destruction and unemployment" , Federal Reserve Bank of San Francisco, Proceedings, issue Nov, 2007.
More from this series
JEL Classification:
Subject headings:
For corrections, contact Federal Reserve Bank of San Francisco Research Library ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal