Abstract
The employment rate in the United States fluctuates asymmetrically over the business cycle: it contracts deeply and sharply during recessions, but it recovers slowly and gradually during expansions. By contrast, aggregate output exhibits nearly symmetric fluctuations about trend. I explain these facts using an equilibrium business cycle model with search frictions in the labor market and worker heterogeneity in productivity, featuring endogenous job destruction and fluctuations in labor composition. The model predicts that the response of the employment rate to shocks greatly varies over the business cycle; notably, it raises in recessions and declines in expansions.
Original language | English (US) |
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Pages (from-to) | 145-162 |
Number of pages | 18 |
Journal | Review of Economic Dynamics |
Volume | 30 |
DOIs | |
State | Published - Oct 2018 |
Keywords
- Business cycles
- Cyclical asymmetry
- Labor quality
- Search frictions
- Unemployment rate
- Worker heterogeneity
ASJC Scopus subject areas
- Economics and Econometrics