Exogenous vs. Endogenous Separation
- Publisher: eScholarship, University of California
job finding | separation | unemployment | separation, job finding, unemployment
This paper assesses how various approaches to modelling the separation margin aÂ¤ect the ability of the Mortensen-Pissarides job matching model to explain key facts about the aggregate labor market. Allowing for realistic time variation in the separation rate, whether exogenous or endogenous, greatly in- creases the unemployment variability generated by the model. Speciâ€¦cations with exogenous separation rates, whether constant or time-varying, fail to pro- duce realistic volatility and productivity responsiveness of the separation rate and worker â€¡ows. Speciâ€¦cations with endogenous separation rates, on the other hand, succeed along these dimensions. In addition, the endogenous separation model with on-the-job search yields a realistic Beveridge curve correlation, and it performs well in accounting for the productivity responsiveness of vacancies and market tightness. When the Hagedorn-Manovskii calibration approach is used, the behavior of the job â€¦nding rate, vacancies and market tightness be- comes more realistic, but the volume of job-to-job transitions in the on-the-job search speciâ€¦cation is essentially zero.