Cover IMF Working Papers
Financial Disruptions and the Cyclical Upgrading of Labor
Author:
Brendan Epsteinnull

Search for other papers by Brendan Epstein in
Current site
Google Scholar
PubMedClose
,
Alan Finkelstein Shapironull

Search for other papers by Alan Finkelstein Shapiro in
Current site
Google Scholar
PubMedClose
, and
Andrés González Gómez
Search for other papers by Andrés González Gómez in
Current site
Google Scholar
PubMedClose
Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 131
Language:
English
Publication Date:
08 Jun 2017
DOI:
https://doi.org/10.5089/9781475595864.001
ISBN:
9781475595864
ISSN:
1018-5941
Pages:
45
Keywords:
WP; business cycle; labor market; Business cycles; financial frictions; labor search frictions; on-the-job search; wage bill; market tightness; TFP shock; OTJ search; labor income; discount factor; collateral constraint; recruiting decision; maximization problem; Wages; Unemployment; Total factor productivity; Income; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (1.6 MB) Download Epub
Amid total factor productivity (TFP) shocks job-to-job flows amplify the volatility of unemployment, but the aggregate implications of job-to-job flows amid financial shocks are less understood. To develop such understanding we model a general equilibrium labor-search framework that incorporates on-the-job (OTJ) search and distinctly accounts for the differential impact of TFP and financial shocks. Surprisingly, we find that the interaction of OTJ search with financial shocks is sufficiently different from its interaction with TFP shocks so that, under standard calibrations, our model generates aggregate dynamics exceedingly in line with the behavior of key U.S. macro data across several decades and in the wake of the Global Financial Crisis as well. Importantly, as in the data, the model yields relatively high volatilities of consumption, labor income, and unemployment. As such, our work contributes to resolving two limitations of current general equilibrium labor-search theory: under standard calibrations models without OTJ search generate implausibly low unemployment volatility, while models with OTJ search generate unemployment volatility closer to the data but at the expense of implausibly low consumption and labor-income volatility.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2017: Issue 131