The model of the preceding sections has rich implications for both the cross-sectional and time series behavior of labor markets. We now explore these implications quantitatively and confront them with relevant stylized facts that have emerged in recent literature.
An overview of our approach is provided in the tables and figures that follow. Table 1 summarizes our calibration strategy and its implied parameters, expressed at a monthly frequency. Table 2, together with Figures 5 and 6, then report the calibrated model’s implications for a wide range of nontargeted moments, and contrast them with empirical analogues. These are split between cross-sectional implications for measures of imperfect labor market competition and establishment dynamics, and macroeconomic implications for aggregate labor market dynamics. We now describe our approach in detail.
FIGURE 5
Open in new tabDownload slide Gross worker and job flows implied by the model
Notes: Application of Davis et al. and JOLTS methodologies to model-generated data simulated over one quarter in Panels A and B, and one month in Panels C and D. Data in Panel B are from Davis et al. (2012). Data in Panels C and D are estimates from Davis et al. (2013) with controls for establishment fixed effects. “Adjusted” model-generated data are based on a model of mismeasurement of vacancies reported in the text.
FIGURE 6
Open in new tabDownload slide Transition dynamics of calibrated model
Notes: Based on simulation of the model calibrated as described in Table 1. The figure illustrates the dynamic response to an unanticipated, permanent 1% decline in aggregate labor productivity.
TABLE 1 Parameters and targeted moments of calibrated model (monthly frequency)
Parameter
Value
Reason/moment
Model
Target
A. Externally calibrated
ω0
Flow breakdown payoff
0.488
Normalization
–
–
r
Discount rate
0.004
Annual real interest rate
0.05
0.05
α
Returns to scale
0.64
Cooper et al. (2007, 2015)
–
–
L
Labor force
21.05
Average firm size
20
20
B. Internally calibrated
c
Per-worker hiring cost
1.107
Hiring costs/monthly pay
1
1
σ
Std. dev. x shocks
0.066
Empl. at estabs. with no hires
0.348
0.348
X
Job creation curve shifter
19.68
U-to-E rate
0.25
0.25
ς0
Exogenous separation rate
0.012
Unemployment rate
0.05
0.05
A
Matching efficiency
1.111
Vacancy rate
0.025
0.025
ϵ
Matching elasticity
0.285
Beveridge curve elasticity
−1
−1
s
Employed search intensity
0.148
E-to-E rate
0.032
0.032
β
Worker bargaining power
0.512
Avg. job-to-job wage gain
0.08
0.08
Notes: The rationale and source for each targeted moment are explained in detail in the main text.
Open in new tab
TABLE 2 Nontargeted moments
Moment
Model
Data
A. Imperfect labor market competition
Rent-sharing measures
Pass-through
0.40
0.2 to 0.4
Elasticity
0.56
0.4 to 0.7
Wage elasticity of quits
–1.55
−1.5 to −2.0
Frictional log wage dispersion
Std. dev.
0.06
—
90–10 differential
0.15
—
Mean-min wage ratio
1.24
—
Var. of log wages in natural wastage region/total var.
0.75
—
B. Establishment dynamics
Raw ν
Adj. ˜ν
Employment at estabs. with no vacancies
0.54
0.45
0.45
Vacancies at t at estabs. with no vacancies at t−1
0.17
0.18
0.18
Hires in (t−1,t) at estabs. with no vacancies at t−1
0.09
0.37
0.42
Hires rate elasticity of daily vacancy-filling rate
0.25
0.74
0.82
Std. dev. employment growth
Monthly
0.08
0.08
Quarterly
0.19
0.29
Annual
0.49
0.39
C. Aggregate dynamics
Response relative to output per worker
|Elasticity|
Relative sd.
Unemployment rate
7.6
14.0
Vacancy rate
7.6
12.6
U-to-E rate
6.7
11.6
E-to-U rate
1.3
3.6
E-to-E rate
5.5
5.7
Response relative to unemployment rate
Semi-elasticity
Semi-elasticity
Average wage
–1.4
≈−1
Notes: Data ranges are from the following sources. Panel A: Manning (2011); Kline et al. (2019). Panel B: Davis et al. (2012, 2013); Haltiwanger et al. (2013). Panel C: an update and extension of Shimer (2005) for labor market stocks and flows; a summary of Solon et al. (1994) and Elsby et al. (2016) for wages. “Adjusted ˜ν” model outcomes in Panel B are based on a model of mismeasurement of vacancies reported in the text. Model outcomes in Panel C are steady state (semi-)elasticities. Further detail is provided in the main text.
Open in new tab
