Unemployment Paths in a Pandemic Economy
The COVID-19 pandemic has upended the U.S. economy and labor market. We assess the initial spike in unemployment due to the virus response and possible paths for the official unemployment rate through 2021. Substantial uncertainty surrounds the path for measured unemployment, depending on the path of the virus and containment measures and their impact on reported job search activity. We assess potential unemployment paths based on historical patterns of monthly flows in and out of unemployment, adjusted for unique features of the virus economy. The possible paths vary widely, but absent ...
Shifts in the Beveridge curve
This note puts the current shift in the Beveridge curve into context by examining the behavior of the curve since 1950. Outward shifts in the Beveridge curve have been common occurrences during U.S. recoveries. By itself, the presence of a shift has not been a good predictor of whether the unemployment rate at the end of the expansion following a shift was higher or lower than that in the preceding expansion.
Understanding Declining Fluidity in the U.S. Labor Market
We document a clear downward trend in labor market fluidity that is common across a variety of measures of worker and job turnover. This trend dates to at least the early 1980s if not somewhat earlier. Next we pull together evidence on a variety of hypotheses that might explain this downward trend. It is only partly related to population demographics and is not due to the secular shift in industrial composition. Moreover, the decline in labor market fluidity seems unlikely to have been caused by an improvement in worker-firm matching, the formalization of hiring practices, or an increase in ...
Unemployment Rate Benchmarks
This paper discusses various concepts of unemployment rate benchmarks that are frequently used by policymakers for assessing the current state of the economy as it relates to the pursuit of both price stability and maximum employment. In particular, we propose two broad categories of unemployment rate benchmarks: (1) a longer-run unemployment rate expected to prevail after adjusting to business cycle shocks and (2) a stable-price unemployment rate tied to inflationary pressures. We describes how various existing measures used as benchmark rates fit within this taxonomy with the goal of ...
Why Is Wage Growth So Low?
Real wage growth has been low in recent years despite continued improvement in the labor market. I examine the interaction between productivity growth and unemployment and show that low productivity growth largely accounts for the current low wage growth. If productivity growth were to pick up, the current low unemployment rate would likely strengthen the positive relationship between productivity growth and wage growth.
Asset Prices and Unemployment Fluctuations
Recent critiques have demonstrated that existing attempts to account for the unemployment volatility puzzle of search models are inconsistent with the procylicality of the opportunity cost of employment, the cyclicality of wages, and the volatility of risk-free rates. We propose a model that is immune to these critiques and solves this puzzle by allowing for preferences that generate time-varying risk over the cycle, and so account for observed asset pricing fluctuations, and for human capital accumulation on the job, consistent with existing estimates of returns to labor market experience. ...
Approximating Multisector New Keynesian Models
We show that a calibrated three-sector model with a suitably chosen distribution of price stickiness can closely approximate the dynamic properties of New Keynesian models with a much larger number of sectors. The parameters of the approximate three-sector distribution are such that both the approximate and the original distributions share the same (i) average frequency of price changes, (ii) cross-sectional average of durations of price spells, (iii) cross-sectional standard deviation of durations of price spells, (iv) the cross-sectional skewness of durations of price spells, and (v) ...
Credit Frictions in the Great Recession
Although a credit tightening is commonly recognized as a key determinant of the Great Recession, to date, it is unclear whether a worsening of credit conditions faced by households or by firms was most responsible for the downturn. Some studies have suggested that the household-side credit channel is quantitatively the most important one. Many others contend that the firm-side channel played a crucial role. We propose a model in which both channels are present and explicitly formalized. Our analysis indicates that the household-side credit channel is quantitatively more relevant than the ...
Search with wage posting under sticky prices
Spatial Wage Gaps in Frictional Labor Markets
We develop a job ladder model with labor reallocation across firms and regions, and estimate it on matched employer-employee data to study the large and persistent real wage gap between East and West Germany. We find that the wage gap is mostly due to firms paying higher wages per efficiency unit in West Germany and quantify a rich set of frictions preventing worker reallocation across space and across firms. We find that three spatial barriers impede East Germans’ ability to migrate West: migration costs, a preference to live in the East, and fewer job opportunities received from the West. ...