Labor turnover costs, investment-specific shocks and the cyclical behavior of labor markets

Resumen

This thesis studies the role of Labor Turnover Costs (LTC), instantaneous capital adjustment, endogenous capital utilization, neutral productivity shocks and investment-specific shocks on the cyclical behavior of labor markets with the presence of matchingfrictions. In Chapter 1 of this thesis we present the Diamond-Mortensen-Pissarides matching model (henceforth DMP model) and review Shimer's (2005a) critique: this standard model is only capable of generating 10 percent of the actual unemployment fluctuations in response to empirically plausible productivity shocks. Then, we explore some of the extensions introduced into the model to improve its amplification mechanism. We tentatively conclude that there is no wholly satisfactory extension of the basic setup able to reproduce the key characteristics of the US data. In Chapter 2 we explore the role of labor turnover costs on the cyclical behavior of the US labor market. The existence of labor turnover costs associated with matching frictions may be considered a key element of the labor market. These costs can be divided in two components: (i) costs related to the hiring process of a new employee (advertising costs, processing of applications, interviews); and (ii) other costs generated once the match has taken place (e.g. training costs, firing costs, etc.), which we call post-match labor turnover costs (PMLTC). The standard DMP approach only considers the former; however, survey information presented in this chapter reveals that PMLTC are 4 times higher than hiring costs. We observe that the introduction of this source of heterogeneity helps to generate substantial movements in vacancies and unemployment along a downward sloping Beveridge curve in response to shocks of a reasonable magnitude. Additionally, we show that the volatility of the model can be increased without introducing unrealistic sensitivity of unemployment to unemployment benefits. Chapter 3 constitutes a example of the applicability of the exten