New evidence, old puzzles: Technology shocks and labor market dynamics

Abstract

Can the standard search-and-matching labor market model replicate the business cycle fluctuations of the job finding rate and the unemployment rate? In the model, these fluctuations are driven by movements in productivity. This paper investigates the sources of productivity fluctuations that are commonly interpreted as technology shocks. I estimate different types of technology shocks from structural vector autoregressions and reassess the empirical performance of the standard model based on second moments that are conditional on technology and nontechnology (preference) shocks.Most prominently, the model is able to replicate the conditional volatilities of job finding and unemployment.However, it fails to replicate the correlation of productivity with unemployment and job finding that is conditional on both technology and nontechnology shocks.