Quantitative Economics: Nov, 2012, Volume 3, Issue 3

New evidence, old puzzles: Technology shocks and labor market dynamics

Almut Balleer

Can the standard search-and-matching labor market model replicate the busi-
ness cycle fluctuations of the job finding rate and the unemployment rate? In the
model, these fluctuations are driven by movements in productivity. This paper in-
vestigates the sources of productivity fluctuations that are commonly interpreted
as technology shocks. I estimate different types of technology shocks from struc-
tural vector autoregressions and reassess the empirical performance of the stan-
dard model based on second moments that are conditional on technology and
nontechnology (preference) shocks. Most prominently, the model is able to repli-
cate the conditional volatilities of job finding and unemployment. However, it fails
to replicate the correlation of productivity with unemployment and job finding
that is conditional on both technology and nontechnology shocks.
Keywords. Labor market dynamics, technology shocks, structural VAR, search
and matching, business cycle.
JEL classification. E24, E32, O33.

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