The U.S. employment rate fluctuates asymmetrically over the business cycle: it contracts deeply and sharply during recessions, but it recovers slowly and gradually during expansions. By contrast, output features nearly symmetric fluctuations. I explain these facts using a search-and-matching model with worker heterogeneity in skills. The model identifies endogenous job separation and cyclical fluctuations in the composition of the unemployment pool as key driving forces of the asymmetric cyclical behavior of the U.S. labor market and output.

This paper studies the cyclical behavior of a number of industrial labor markets of the pre-war (1923-1939) and post-war (1954-1982) eras. In the spirit of Burns and Mitchell we do not test a specific structural model of the labor market but instead concentrate on describing the qualitative features of the (monthly, industry-level) data.The two principal questions we ask are: First, how is labor input (as measured by the number of workers, the hours of work, and the intensity of utilization) varied over the cycle ? Second, what is the cyclical behaviorof labor compensation (as measured by real wages, product wages, and real weekly earnings) ? We study these questions in both the frequency domain and the time domain. Many of our findings simply reinforce, or perhaps refine, existing perceptions of cyclical labor market behavior. However, we do find some interesting differences between the pre-war and the post-war periods in ther elative use of layoffs and short hours in downturns, and in the cyclical behavior of the real wage.

We set-up a real business cycle model with search and matching frictions driven by several shocks, which nests full Nash Bargaining and wage rigidity as special cases and includes other transmission mechanisms suggested by the literature for the propagation and amplification of disturbances. The model is estimated using full information methods for two Anglo-Saxon countries (the US and the UK), two Continental European countries (France and Germany) and two Scandinavian countries (Norway and Sweden). We conduct inference with mixed frequency data, combining quarterly series for unemployment, vacancies, GDP, consumption, and investment, with annual data on unemployment flows. Parameters and shocks are estimated separately for each country, which can then vary in terms of search and hiring costs, workers' bargaining power, unemployment benefits levels, wage rigidity and the stochastic properties of disturbances. Overall, the structural model accounts reasonably well for differences in labor market dynamics observed between the two sides of the Atlantic and within Europe. Our estimates indicate that there is considerable cross-country variation in the contribution of technology shocks to the cyclical fluctuations of the labor market. Technology shocks alone replicate remarkably well the volatility in vacancies, unemployment and finding probabilities observed in US, with mixed success in Europe. In contrast, matching shocks and job destruction shocks play a larger role in most European countries relative to the US.

This book is primarily a critical survey of small-case, theoretical macro models that attempts to analyze the cyclical behavior of modern economies. The authors emphasize the role of the labor market, which is treated very differently in such models. They show how the development of business cycle models owes almost as much to the development of analytic methods as to the economic events that make analysis necessary; this leads to the examination of the changing nature of the mathematical tools that have been used by business cycle theorists. They give examples of how these newer tools can deal with nonlinear models that are capable of generating a richer variety of dynamic outcomes than was possible with linear models. The treatment of these topics does not require a strong background in mathematics and the authors' goal is to call attention to the new methods and provide examples of the results that are possible with them rather than to teach those methods in detail. In addition to the survey material, they describe a regime switching model of their own that is capable of generating cyclical behavior. This model is greatly influenced by its labor market component, in which a nonlinearity is introduced through the device of switching between linear behavioral equations. The model is analyzed analytically and with simulation experiments.