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THE CYCLICAL BEHAVIOR OF UNEMPLOYMENT AND VACANCIES WITH LOSS OF SKILLS DURING UNEMPLOYMENT

  • Victor Ortego-Marti (a1)
Abstract

This paper studies the cyclical fluctuations in unemployment and vacancies in a search and matching model in which workers lose skills during periods of unemployment. Firms' profits fluctuate more because aggregate productivity affects the economy's average human capital. Moreover, wages for workers with lower levels of human capital are closer to the value of nonmarket time, leading to more rigid wages. Fluctuations in the vacancy--unemployment ratio are larger than those in the baseline search and matching model and similar to those we observe in the data.

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Corresponding author
Address correspondence to: Victor Ortego-Marti, Department of Economics, University of California, Riverside, Sproul Hall 3132, Riverside, CA 92521, USA; e-mail: victor.ortego-marti@ucr.edu.
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I am grateful to the Associate Editor, two anonymous referees, Marcelle Chauvet, Yu-Chin Chen, Russell Cooper, Joel David, Jang-Ting Guo, Urmee Khan, Pete Klenow, David Lagakos, David Malueg, Vincenzo Quadrini, Xavier Raurich, Guillaume Rocheteau, Richard Suen, Stephen Turnovsky, Gianluca Violante, Carl Walsh, Joel Watson, Randall Wright, and Alwyn Young for invaluable comments and suggestions. I also benefited from helpful discussions with seminar participants at UC Riverside and the 15th Annual Meeting of the Association for Public Economic Theory at the University of Washington.

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Macroeconomic Dynamics
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