Long Live the Vacancy. A new GLO Discussion Paper by GLO Fellow Christian Haefke and Michael Reiter

A new GLO Discussion Paper studies the role of long-term vacancies in a Diamond-Mortensen-Pissarides style search and matching model calibrated to the US economy and identifies a vacancy depletion channel.

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GLO Discussion Paper No. 654, 2020

Long Live the Vacancy Download PDF
Haefke, Christian & Reiter, Michael

GLO Fellow Christian Haefke

Author Abstract: We reassess the role of vacancies in a Diamond-Mortensen-Pissarides style search and matching model. In the absence of free entry long lived vacancies and endogenous separations give rise to a vacancy depletion channel which we identify via joint unemployment and vacancy dynamics. We show conditions for constrained efficiency and discuss important implications of vacancy longevity for modeling and calibration, in particular regarding match cyclicality and wages. When calibrated to the postwar US economy, the model explains not only standard deviations and autocorrelations of labor market variables, but also their dynamic correlations with only one shock.

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