State dependence in labor market fluctuations: evidence, theory, and policy implications
This paper documents state dependence in labor market ?uctuations. Using a Threshold Vector-Autoregression model, we establish that the unemployment rate, the job separation rate and the job ?nding rate exhibit a larger response to productivity shocks during periods with low aggregate productivity....
| Main Authors: | , |
|---|---|
| Format: | Working paper |
| Published: |
University of Oxford
2018
|
| _version_ | 1797093059462168576 |
|---|---|
| author | Zanetti, F Theodoridis, K |
| author_facet | Zanetti, F Theodoridis, K |
| author_sort | Zanetti, F |
| collection | OXFORD |
| description | This paper documents state dependence in labor market ?uctuations. Using a Threshold Vector-Autoregression model, we establish that the unemployment rate, the job separation rate and the job ?nding rate exhibit a larger response to productivity shocks during periods with low aggregate productivity. A Diamond-Mortensen-Pissarides model with endogenous job separation and on-the-job search replicates these empirical regularities well. The transition rates into and out of employment embed state dependence through the interaction of reservation productivity levels and the distribution of match-speci?c idiosyncratic productivity. State dependence implies that the e?ect of labor market reforms is di?erent across phases of the business cycle. A permanent removal of layo? taxes is welfare enhancing in the long run, but it involves distinct short-run costs depending on the initial state of the economy. The welfare gain of a tax removal implemented in a low-productivity state is 4.9 percent larger than the same reform enacted in a state with high aggregate productivity. |
| first_indexed | 2024-03-07T03:54:53Z |
| format | Working paper |
| id | oxford-uuid:c28859bb-ddda-47d4-ad4f-b7b1605ad3ca |
| institution | University of Oxford |
| last_indexed | 2024-03-07T03:54:53Z |
| publishDate | 2018 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:c28859bb-ddda-47d4-ad4f-b7b1605ad3ca2022-03-27T06:09:38ZState dependence in labor market fluctuations: evidence, theory, and policy implicationsWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:c28859bb-ddda-47d4-ad4f-b7b1605ad3caBulk import via SwordSymplectic ElementsUniversity of Oxford2018Zanetti, FTheodoridis, KThis paper documents state dependence in labor market ?uctuations. Using a Threshold Vector-Autoregression model, we establish that the unemployment rate, the job separation rate and the job ?nding rate exhibit a larger response to productivity shocks during periods with low aggregate productivity. A Diamond-Mortensen-Pissarides model with endogenous job separation and on-the-job search replicates these empirical regularities well. The transition rates into and out of employment embed state dependence through the interaction of reservation productivity levels and the distribution of match-speci?c idiosyncratic productivity. State dependence implies that the e?ect of labor market reforms is di?erent across phases of the business cycle. A permanent removal of layo? taxes is welfare enhancing in the long run, but it involves distinct short-run costs depending on the initial state of the economy. The welfare gain of a tax removal implemented in a low-productivity state is 4.9 percent larger than the same reform enacted in a state with high aggregate productivity. |
| spellingShingle | Zanetti, F Theodoridis, K State dependence in labor market fluctuations: evidence, theory, and policy implications |
| title | State dependence in labor market fluctuations: evidence, theory, and policy implications |
| title_full | State dependence in labor market fluctuations: evidence, theory, and policy implications |
| title_fullStr | State dependence in labor market fluctuations: evidence, theory, and policy implications |
| title_full_unstemmed | State dependence in labor market fluctuations: evidence, theory, and policy implications |
| title_short | State dependence in labor market fluctuations: evidence, theory, and policy implications |
| title_sort | state dependence in labor market fluctuations evidence theory and policy implications |
| work_keys_str_mv | AT zanettif statedependenceinlabormarketfluctuationsevidencetheoryandpolicyimplications AT theodoridisk statedependenceinlabormarketfluctuationsevidencetheoryandpolicyimplications |