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Labor Market Frictions and Aggregate Employment

Author

Listed:
  • Ryan Michaels

    (Federal Reserve Bank of Philadelphia)

  • David Ratner

    (Federal Reserve Board)

  • Michael Elsby

    (University of Edinburgh)

Abstract

What are the aggregate employment effects of labor market frictions? Canonical labor market models share a common theme in exploring the implications of adjustment frictions. We use this shared microeconomic structure to devise an empirical diagnostic that allows one to bound the effects of this class of frictions on the path of aggregate employment. Application of this diagnostic to rich establishment microdata for the United States suggests that canonical labor market frictions are unable to explain the majority of observed employment dynamics. This result can be traced to the failure of canonical models to account for the dynamics of the firm size distribution observed in establishment microdata.

Suggested Citation

  • Ryan Michaels & David Ratner & Michael Elsby, 2016. "Labor Market Frictions and Aggregate Employment," 2016 Meeting Papers 770, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:770
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    References listed on IDEAS

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