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It has been well documented that the cyclical adjustment of labor input chiefly represents movement of workers into and out of employment, rather than adjustment of hours at given jobs. Thus, in understanding business cycles, it is centrally important to understand the formation and breakdown of employment relationships. The nature of employment adjustments over the cycle has also received close scrutiny. Evidence from a number of sources indicates that recessionary employment reductions are accounted for by elimination of preexisting jobs, i.e., job destruction, to a greater extent than by diminished creation of new jobs. Substantial cyclical variation in the rate of job destruction suggests that closer consideration of the breakdown of employment relationships may help to explain how shocks to the economy generate large and persistent output fluctuations. 1 This paper addresses these issues by studying the endogenous breakup of employment relationships in a dynamic general-equilibrium model with labor-market matching. Production is assumed to entail long-term relationships between workers and firms. We consider a version of Dale T. Mortensen and Christopher A. Pissarides' (1994) model, wherein a worker and firm who are currently matched must decide each period whether to preserve or sever their relationship, based on their current-period productivity. By altering the trade-off between match preservation and severance, aggregate productivity shocks induce fluctuations in the job-destruction rate, thereby exerting effects on output that go beyond those resulting from productivity variations in continuing relationships. We embed the basic Mortensen-Pissarides mechanism into a full dynamic general-equilibrium model, analyze the role of fluctuations in the job-destruction rate in propagating shocks, and assess the model's quantitative implications.Most business-cycle models in the realbusiness-cycle (RBC) tradition share the feature that model-generated output data exhibit dynamic characteristics nearly identical to those of the underlying exogeneous shocks, so that economic mechanisms play a minimal role in propagating shocks (Timothy Cogley and James M. Nason, 1993Nason, , 1995Julio J. Rotemberg and Michael Woodford, 1996). In our model, however, fluctuations in the job-destruction rate give rise to a significant propagation mechanism: productivity shocks are magnified in their effect on output at the point of impact, and the persistence of output effects is greatly increased. Using simulated data from a calibrated version of the model, we find that the standard deviation of output is roughly two and one-half times larger than the standard deviation of the

This paper uses CPS gross flow data to analyze the business cycle dynamics of separation and job finding rates and to quantify their contributions to overall unemployment variability. Cyclical changes in the separation rate are negatively correlated with changes in productivity and move contemporaneously with them, while the job finding rate is positively correlated with and tends to lag productivity. Contemporaneous fluctuations in the separation rate explain between 40 and 50 percent of fluctuations in unemployment, depending on how the data are detrended. This figure becomes larger when dynamic interactions between the separation and job finding rates are considered.

After three decades of decline, the amount of time spent by parents on childcare in the U.S. began to rise dramatically in the mid-1990s. Moreover, the rise in childcare time was particularly pronounced among college-educated parents. Why would highly educated parents increase the amount of time they allocate to childcare at the same time that their own market returns have skyrocketed? After finding no empirical support for standard explanations, such as selection or income effects, we offer a new explanation. We argue that increased competition for college admissions may be an important source of these trends. The number of college-bound students has surged in recent years, coincident with the rise in time spent on childcare. The resulting "cohort crowding" has led parents to compete more aggressively for college slots by spending increasing amounts of time on college preparation. Our theoretical model shows that, since college-educated parents have a comparative advantage in college preparation, rivalry leads them to increase preparation time by a greater amount than less-educated parents. We provide empirical support for our explanation with a comparison of trends between the U.S. and Canada, and a comparison across racial groups in the U.S.

This article uses CPS gross flow data to analyze the business cycle dynamics of separation and job finding rates and quantify their contributions to overall unemployment variability. Cyclical changes in the separation rate are negatively correlated with changes in productivity and move contemporaneously with them, whereas the job finding rate is positively correlated with and tends to lag productivity. Contemporaneous fluctuations in the separation rate explain between 40 and 50% of fluctuations in unemployment, depending on how the data are detrended. This figure becomes larger when dynamic interactions between the separation and job finding rates are considered. Copyright � (2009) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.