Separations, Sorting, and Cyclical Unemployment

By Andreas I. Mueller

American Economic Review, July 2017

This paper establishes a new fact about the compositional changes in the pool of unemployed over the US business cycle. Using micro-data from the Current Population Survey for the years 1962-2012, it documents that in recessions the pool of unemployed shi...

The Effect of Disability Insurance Payments on Beneficiaries' Earnings

By Alexander Gelber, Timothy J. Moore, and Alexander Strand

American Economic Journal: Economic Policy, August 2017

A crucial issue is whether social insurance affects work decisions through income or substitution effects. We examine this in the context of US Social Security Disability Insurance (DI), exploiting discontinuous changes in the benefit formula with a regre...

The Fundamental Surplus

By Lars Ljungqvist and Thomas J. Sargent

American Economic Review, September 2017

To generate big responses of unemployment to productivity changes, researchers have reconfigured matching models in various ways: by elevating the utility of leisure, by making wages sticky, by assuming alternating-offer wage bargaining, by introducing co...

The Substitution Elasticity, Factor Shares, and the Low-Frequency Panel Model

By Robert S. Chirinko and Debdulal Mallick

American Economic Journal: Macroeconomics, October 2017

The value of the elasticity of substitution between labor and capital (σ) is a crucial assumption in understanding the secular decline in the labor share of income. This paper develops and implements a new strategy for estimating this crucial parame...

The Growth Potential of Startups over the Business Cycle

By Petr Sedláček and Vincent Sterk

American Economic Review, October 2017

This paper shows that employment in cohorts of US firms is strongly influenced by aggregate conditions at the time of their entry. Employment fluctuations of startups are procyclical, they persist into later years, and cohort-level employment variations a...

Fiscal Externalities and Optimal Unemployment Insurance

By Nicholas Lawson

American Economic Journal: Economic Policy, November 2017

A common finding of the optimal unemployment insurance (UI) literature is that the optimal replacement rate is around 50 percent; however, a key assumption is that UI is the only government spending activity. I show that optimal UI levels may be dramatica...

Gross Worker Flows over the Business Cycle

By Per Krusell, Toshihiko Mukoyama, Richard Rogerson, and Ayşegül Şahin

American Economic Review, November 2017

We build a hybrid model of the aggregate labor market that features both standard labor supply forces and frictions in order to study the cyclical properties of gross worker flows across the three labor market states: employment, unemployment, and nonpa...

Recall and Unemployment

By Shigeru Fujita and Giuseppe Moscarini

American Economic Review, December 2017

We document in the Survey of Income and Program Participation covering the period 1990–2013 that a surprisingly large share of workers return to their previous employer after a jobless spell, and experience very different unemployment and employment...

How Do Hours Worked Vary with Income? Cross-Country Evidence and Implications

By Alexander Bick, Nicola Fuchs-Schündeln, and David Lagakos

American Economic Review, January 2018

This paper builds a new internationally comparable database of hours worked to measure how hours vary with income across and within countries. We document that average hours worked per adult are substantially higher in low-income countries than in high-in...

Measuring Job-Finding Rates and Matching Efficiency with Heterogeneous Job-Seekers

By Robert E. Hall and Sam Schulhofer-Wohl

American Economic Journal: Macroeconomics, January 2018

Matching efficiency is the productivity of the process for matching job-seekers to available jobs. Job-finding is the output; vacant jobs and active job-seekers are the inputs. We develop a framework for measuring matching productivity when the population...

Job Polarization and Structural Change

By Zsófia L. Bárány and Christian Siegel

American Economic Journal: Macroeconomics, January 2018

We document that job polarization—contrary to the consensus—has started as early as the 1950s in the United States: middle-wage workers have been losing both in terms of employment and average wage growth compared to low- and high-wage workers...

The Relative Importance of Aggregate and Sectoral Shocks and the Changing Nature of Economic Fluctuations

By Julio Garin, Michael J. Pries, and Eric R. Sims

American Economic Journal: Macroeconomics, January 2018

A principal components decomposition of sectoral IP data reveals that the contribution of aggregate shocks to the variance of aggregate output declined from about 70 percent in the period 1967–1983 to about 30 percent after 1983. We develop an "isla...

Job Search Behavior over the Business Cycle

By Toshihiko Mukoyama, Christina Patterson, and Ayşegül Şahin

American Economic Journal: Macroeconomics, January 2018

We create a novel measure of job search effort exploiting the American Time Use and Current Population Surveys. We examine the cyclicality of search effort using time-series, cross-state, and individual variation and find that it is countercyclical. We th...

Should We Reject the Natural Rate Hypothesis?

[Symposium: Friedman's Natural Rate Hypothesis after 50 Years]

By Olivier Blanchard

Journal of Economic Perspectives, Winter 2018

Fifty years ago, Milton Friedman articulated the natural rate hypothesis. It was composed of two sub-hypotheses: First, the natural rate of unemployment is independent of monetary policy. Second, there is no long-run trade-off between the deviation of u...

Short-Run and Long-Run Effects of Milton Friedman's Presidential Address

[Symposium: Friedman's Natural Rate Hypothesis after 50 Years]

By Robert E. Hall and Thomas J. Sargent

Journal of Economic Perspectives, Winter 2018

The centerpiece of Milton Friedman's (1968) presidential address to the American Economic Association, delivered in Washington, DC, on December 29, 1967, was the striking proposition that monetary policy has no longer-run effects on the real economy. Fr...

Retrospectives: Cost-Push and Demand-Pull Inflation: Milton Friedman and the "Cruel Dilemma"

By Johannes A. Schwarzer

Journal of Economic Perspectives, Winter 2018

This paper addresses two conflicting views in the 1950s and 1960s about the inflation-unemployment tradeoff as given by the Phillips curve. Many economists at this time emphasized the issue of a seemingly unavoidable inflationary pressure at or even bel...

Monetary Policy According to HANK

By Greg Kaplan, Benjamin Moll, and Giovanni L. Violante

American Economic Review, March 2018

We revisit the transmission mechanism from monetary policy to household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of wealth and marginal propensities to consume because of two fea...

Cyclical Job Ladders by Firm Size and Firm Wage

By John C. Haltiwanger, Henry R. Hyatt, Lisa B. Kahn, and Erika McEntarfer

American Economic Journal: Macroeconomics, April 2018

We study whether workers progress up firm wage and size job ladders, and the cyclicality of this movement. Search theory predicts that workers should flow toward larger, higher paying firms. However, we see little evidence of a firm size ladder, partly be...

A Quantitative Theory of Information, Worker Flows, and Wage Dispersion

By Amanda M. Michaud

American Economic Journal: Macroeconomics, April 2018

Employer learning provides a link between wage and employment dynamics. Workers who are selectively terminated when their low productivity is revealed subsequently earn lower wages. If learning is asymmetric across employers, randomly separated high-produ...

The Optimal Timing of Unemployment Benefits: Theory and Evidence from Sweden

By Jonas Kolsrud, Camille Landais, Peter Nilsson, and Johannes Spinnewijn

American Economic Review, April 2018

This paper provides a simple, yet robust framework to evaluate the time profile of benefits paid during an unemployment spell. We derive sufficient-statistics formulae capturing the marginal insurance value and incentive costs of unemployment benefits p...