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Title: State Dependent Okun's Law: A Selective Labor Hoarding Approach

Citation Type: Miscellaneous

Publication Year: 2023

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Abstract: In this paper I show that Okun's Law, the relationship between changes in the unemployment rate and real GDP, is state dependent: the relationship is stronger during recessions. I hypothesize that this state dependency arises from firms engaging in selective labor hoarding. If firms hoard high-skilled workers outside of recessions to economize on training costs, the Okun relationship will be relatively flat in those times. Such labor hoarding becomes untenable during recessions, which produces a nonlinear response of unemployment. I build a dynamic model of directed search with heterogeneous firms, endogenous exit, and training costs that generates the nonlinear response of unemployment to changes in real GDP.

Url: https://nadimelayan.github.io/MyWebsite/SDOL.pdf

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Authors: Elayan Balagú, Nadim

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Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure, Methodology and Data Collection

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