Brown Bag Seminar - Yusuf Mercan

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Aaron Barkley

aaron.barkley@unimelb.edu.au

T: +61383440589

Title: Countercyclical Congestion (joint with Benjamin Schoefer and Petr Sedláček)

Abstract: Recessions are times when more unemployed find jobs.  If new hires and incumbent workers are not perfect substitutes in production, this creates countercyclical congestion. We integrate this channel into an otherwise standard search model. In recessions, when unemployment-to-employment flows rise, new hires become relatively abundant pushing down their marginal product. This generates a strong amplification mechanism. Our model is consistent with a range of macroeconomic regularities: (i) volatility of labor market variables, (ii) strongly downward sloping Beveridge curve, (iii) countercyclicality of the labor wedge, (iv) large earnings losses upon job displacement over the business cycle and (v) the relative insensitivity of labor market variables to labor market policies.

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