The Department of Economics cordially invites you to an ad-hoc Economic Research Seminar (Department Seminar) on Thursday, January 10, with

Francesco Zanetti (University of Oxford) on

"State Dependence in Labor Market Fluctuations: Evidence, Theory and Policy Implications"

Abstract: This paper documents state dependence in labor market fluctuations. Using a Threshold Vector-Autoregression model, we establish that the unemployment rate, the job separation rate and the job finding rate exhibit a larger response to productivity shocks during periods with low aggregate productivity. A Diamond-Mortensen-Pissarides model with endogenous job separation and on-the-job search replicates these empirical regularities well. The transition rates into and out of employment embed state dependence through the interaction of reservation productivity levels and the distribution of match-specific idiosyncratic productivity. State dependence implies that the effect of labor market reforms is different across phases of the business cycle. A permanent removal of layoff taxes is welfare enhancing in the long run, but it involves distinct short-run costs depending on the initial state of the economy. The welfare gain of a tax removal implemented in a low-productivity state is 4.9 percent larger than the same reform enacted in a state with high aggregate productivity.

Time and place: Thursday, January 10, 4.00 p.m. – 5.30 p.m., Campus WU, Welthandelsplatz 1, 1020 Vienna, building D4, entrance A, 2nd floor, Department meeting room 2.008.