Unemployment-Rate Dynamics and Persistent Unemployment Under Rational Expectations / Michael R. Darby, John C. Haltiwanger, Mark W. Plant.

Format:

Book

Author/Creator:

Darby, Michael R.

Contributor:

National Bureau of Economic Research.

Haltiwanger, John C.

Plant, Mark W.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1558.

NBER working paper series no. w1558

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1985.

Summary:

This paper develops a model of unemployment rate dynamics that provides an explanation of persistent cyclical unemployment that does not involve persistent expectational errors or other nonoptimizing behavior. Our results are based on the interaction of search dynamics and inventory adjustments. An important element in these dynamics appears to be heterogeneity in the labor force which can be characterized as consisting of a relatively small group of high turnover individuals who comprise the bulk of normal unemployment and a larger group of low turnover individuals who dominate movements in cyclical unemployment. Our empirical results provide support for this theory as we demonstrate that the appropriately measured probability of becoming employed during a recovery falls relative to normal because of the unusually high proportion of low turnover individuals who have lost "permanent" jobs. As aresult, recovery is much slower than is indicated by normal relationships although each individual is searching optimally.

Notes:

Print version record

February 1985.