# Discussion of Cyclical Behavior of Unemployment and Job Vacancies Evidence by carlmartin

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```									         Discussion of

Cyclical Behavior of
Unemployment and Job Vacancies:
Overview of Paper
Motivation: To see how well the Mortensen-Pissarides can

Does the “Shimer Puzzle” hold for Canada as well?
Overview of Paper
Documents cyclical movements in:
• Unemployment (countercyclical)
• Vacancies (procyclical)
• The vacancy to unemployment ratio (procyclical)
• The job-finding rate (procyclical)
• The separation rate (countercyclical)

Shows the Beveridge curve exists for Canada
Overview of Paper
Presents a simply search model with shocks to labor
productivity, simulates it and compares results to data
Shows Shimer’s puzzle holds for Canada

Next, try adding Non-Market Activity (a la Hagedorn and
Manovskii (2005)) to fix the problem
Concludes this doesn’t work
Place in Literature:
Hall (2005) & Shimer (2005) Work on MP model & B.C.

Hagedorn & Manovskii (2005)                MP models with alternate wage determination

Current paper

Claim: Canada is basically the same as the US
(so parameters and model structure virtually identical)

Therefore can use Canada vs US study as a way of
evaluating Hagedorn and Manovskii (2005) argument that
more complete measures of the value of leisure and home
production can help improve the fit of MP over the business
cycle since countries have different UI systems
Obvious Question: How Similar are the
results for Canada and the US?
Average Separation rate: 0.03 vs. 0.038

Average Job Duration: 2.8 years vs. 2.5 years

Magnitude of Unemployment fluctation: 32% vs 38%
above or below trend

*Is the job duration implied in Canada consistent with
tenure data?
U      V      V/U   F       S      P
Standard deviation         0.162   0.237 0.367   0.105  0.096 0.021
0.19  0.202 0.382   0.118  0.075   0.02

Quarterlyautocorrelation   0.956    0.956 0.959     0.791    0.795    0.876
0.936     0.94 0.941     0.908    0.733    0.878
Correlation matrix U           1   -0.689 -0.851    -0.66    0.682   -0.322
1   -0.894 -0.971   -0.949    0.709   -0.408
V                  1 0.958     0.712   -0.475    0.568
1 0.975     0.897   -0.684    0.364
V/U                       1    0.753   -0.595     0.52
1    0.948   -0.715    0.394
F                                  1   -0.155    0.232
1   -0.574    0.396
S                                           1   -0.396
1   -0.524
P                                                    1
1
American Case
American Case
My conclusion
Canada and US not similar on all dimensions
**large difference in role played by separations
My conclusion
Canada and US not similar on all dimensions
**large difference in role played by separations

This is interesting because it is not what Hall (2005) and
Shimer (2005) argue for the US

*Note it is more consistent with evidence presented by
Davis (2005)
Shimer’s Puzzle
*Although the Shimer Puzzle exists for Canada, the magnitude
of the puzzle is different

For the US: Standard MP explains less than 10% of volatility
of the vacancy to unemployment ratio

For Canada: Standard MP explains between 15%-30%
(without adding shocks to separations rate)
• Given separations are more important for Canada, should
consider putting in separations shocks linked to
productivity shocks

• Note that Shimer sets s=0.1 in his AER article, not 0.09 as
you claim in the paper (& use saying it is the same value as
in his calibration)

• Why do you want to use his value for s instead of
calibrating it directly to the Canadian data given you
change the other parameters (except r)

• Why calibrate the UI rate in Canada to the Midpoint of the
replacement range instead of the average or median rate?
Big Picture Comment
Many papers are focusing on trying to make the MP model
consistent with the business cycle facts, but there is still the
possibility that the MP model isn’t the right one.

E.g., Malcomson & Mavroeidis (2006) suggest that less than
30% of unemployment in the US is due to Matching frictions
(high wage frictions account for slightly more than 10% and
Efficiency wage frictions about 60% according to their
estimates)

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