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This dissertation investigates the macroeconomic labor market phenomena through the lens of search-and-matching model of unemployment.
Chapter 1 examines jobless recoveries, which are characterized by weak employment recoveries despite positive output growth following the three most recent recessions. I find that these recoveries coincide with high uncertainty about economy-wide corporate profits at a time when output begins to rebound, a pattern that was not observed in the earlier recessions. I build a search-and-matching model to incorporate uncertainty shocks and show that, when an uncertainty shock hits the economy, firms reduce the number of vacancies posted because they are reluctant to make costly adjustments along the extensive labor margin. This, along with positive productivity shocks, can result in jobless recoveries.
Chapter 2 proposes a model to reconcile the observed labor volatility with the search-and-matching model of unemployment. It has been pointed out that a standard search-and-matching model has difficulty matching the observed volatility in unemployment and vacancy in response to reasonable labor productivity shocks. This chapter examines how monopolistically competitive firms with a working capital requirement (in which firms borrow funds to pay their wage bills) improves the ability of the model to match empirical fluctuations in unemployment and vacancy when the monetary authority follows an interest rate rule. Labor cost increases are moderated in this environment which gives firms greater incentives to create vacancies. Numerical simulations confirm that a working capital requirement does indeed improve the ability of the model to generate fluctuations in the labor market variables to better match the U.S. data.
Chapter 3 examines the effect of severance payment in a Mortensen-Pissarides model with on-the-job search. Severance pay affects steady-state equilibrium outcome by distorting firms' threat point in the rent sharing condition for the on-going matches; on-the-job search allows firms to use voluntary quits to avoid the severance payment. I show that the inclusion of severance pay decreases the job opening to job seeker ratio and reservation productivity, as one would expect. While unemployment rate falls with severance pay, the welfare of the society does not necessarily increase.