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Title:Unemployment dynamics and the cost of business cycles PDF Logo
Authors:Hairault, Jean-Olivier
Langot, Fran├žois
Osotimehin, Sophie
Issue Date:2008
Series/Report no.:IZA discussion papers 3840
Abstract:In this paper, we investigate whether business cycles can imply sizable effects on average unemployment. First, using a reduced-form model of the labor market, we show that job finding rate fluctuations generate intrinsically a non-linear effect on unemployment: positive shocks reduce unemployment less than negative shocks increase it. For the observed process of the job finding rate in the US economy, this intrinsic asymmetry is enough to generate substantial welfare implications. This result also holds when we allow the job finding rate to be endogenous, provided the structural model is able to reproduce the volatility of the job finding rate. Moreover, the matching model embeds other non-linearities which alter the average job finding rate and so the business cycle cost.
Subjects:Business cycle costs
unemployment dynamics
JEL:E32
Persistent Identifier of the first edition:urn:nbn:de:101:1-20081127694
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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