Working Paper

New Evidence, Old Puzzles: Technology Shocks and Labor Market Dynamics

Author

  • Almut Balleer
Publication Date

Can the standard search-and-matching labor market model replicate the business cycle

fluctuations of the job finding rate and the unemployment rate? In the model, fluctuations are

prominently driven by productivity shocks which are commonly interpreted as technology

shocks. I estimate different types of technology shocks from structural VARs and reassess the

empirical performance of the standard model based on second moments that are conditional

on technology shocks. Most prominently, the model replicates the conditional volatility of job

finding and unemployment, so that the Shimer critique does not apply. Instead the model

lacks non-technological disturbances to replicate the overall sample volatility. In addition,

positive technology shocks lead to a fall in job finding and an increase in unemployment

thereby opposing the dynamics in the standard model similar to the “hours puzzle” in Galí

(1999).

Info

JEL Classification
E24, E32, O33

Key Words

  • business cycle
  • labor market dynamics
  • search and matching
  • structural VAR
  • technology shocks