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LABOR TURNOVER COSTS AND THE CYCLICAL BEHAVIOR OF VACANCIES AND UNEMPLOYMENT

Published online by Cambridge University Press:  01 May 2009

José Ignacio Silva  and
Manuel Toledo
José Ignacio Silva*
Affiliation:
Universitat Jaume I de Castellò
Manuel Toledo
Affiliation:
Universidad Carlos III de Madrid
*
Address correspondence to: José Ignacio Silva, Departamento de Economía, Universitat Jaume I de Castellò, Castellò de la Plana (Castellò), Spain 12071; e-mail: [email protected].
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Abstract

This paper extends the Diamond-Mortensen-Pissarides (DMP) matching model with endogenous job destruction by introducing postmatch labor turnover costs. We consider training and separation costs that create heterogeneity among workers. In particular, there are two types of employed workers: (i) new entrants who need training in order to become fully productive, and (ii) incumbents who are fully productive and whose departure from the firm imposes costs on it. We find that our calibrated model, relative to the standard DMP model, comes closer to the data regarding the volatility of vacancies and unemployment without introducing unrealistic sensitivity to policy changes. Moreover, our extended model nearly reproduces the downward-sloping Beveridge curve, which is unusual when endogenous job destruction exists in this type of model.

Keywords

Labor MarketsSearchMatchingTurnover CostsBusiness Cycles
Type
Articles
Information
Macroeconomic Dynamics , Volume 13 , Supplement S1 , May 2009 , pp. 76 - 96
Copyright
Copyright © Cambridge University Press 2009

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