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JOB COMPETITION, CROWDING OUT, AND UNEMPLOYMENT FLUCTUATIONS

Published online by Cambridge University Press:  20 September 2010

Sherif Khalifa
Sherif Khalifa*
Affiliation:
California State University, Fullerton
*
Address correspondence to: Sherif Khalifa, Steven G. Mihaylo College of Business and Economics, Department of Economics, California State University, Fullerton, CA 92834, USA, e-mail: [email protected].
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Abstract

This paper attempts to determine the factors generating the persistence of unemployment over the business cycle. The observations show that the total unemployment rate is highly persistent, and that the persistence of the unemployment rate of unskilled workers is higher than that of skilled workers. To account for these observations, the paper develops a framework that features search frictions. Individuals are either high educated or low educated, and firms post two types of vacancies: the complex, which can be matched with the high educated, and the simple, which can be matched with the high and the low educated. On-the-job search for a complex occupation is undertaken by the high educated in simple occupations. A negative aggregate technological shock induces the high educated unemployed to compete with the low educated by increasing their search intensity for simple vacancies. As the high educated occupy simple vacancies, they crowd out the low educated into unemployment. This downgrading of jobs in a cyclical downturn, or the increase in the labor input of the high educated in simple occupations, and the subsequent crowding out of the low educated into unemployment, provide a possible explanation for unemployment persistence.

Keywords

UnemploymentBusiness CycleSearch and Matching
Type
Articles
Information
Macroeconomic Dynamics , Volume 16 , Issue 1 , February 2012 , pp. 1 - 34
Copyright
Copyright © Cambridge University Press 2010

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