Contagious Unemployment
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Abstract
Recent micro evidence of how workers search for jobs is shown to have critical implications for the macroeconomic propagation of labor market shocks. Unemployed workers send over 10 times as many job applications in a month as their employed peers, but are less than half as likely per application to make a move. I interpret these patterns as the unemployed applying for more jobs that they are less likely to be a good fit for. During periods of high unemployment, it consequently becomes harder for firms to assert who is a good fit for the job. By raising the cost of recruiting, a short-lived adverse shock has a persistent negative impact on the job finding rate. I provide evidence that firms spend more time on recruiting when unemployment is high, quantitatively consistent with the theory. JEL Codes: E24; E32; J63; J64 ∗New York University, CEPR, NBER and UCLS. Email: nengbom@stern.nyu.edu. This paper previously circulated under the title "Recruiting Talent During a Recession." I am grateful for the generous support and advice of Richard Rogerson. I thank Mark Aguiar, Adrien Bilal, Katka Borovickova, Jan Eeckhout, Mike Elsby, Mark Gertler, Robert Hall, Federico Huneeus, Nir Jaimovich, Gregor Jarosch, Greg Kaplan, Loukas Karabarbounis, Philipp Kircher, Marianna Kudlyak, Ricardo Lagos, Ilse Lindenlaub, Paolo Martellini, Virgiliu Midrigan, Ben Moll, John Moore, Ricardo Reis, Esteban Rossi-Hansberg, Petr Sedlacek, Daphné Skandalis (discussant), Venky Venkateswaran, Gianluca Violante, Ludo Visschers, Shu Lin Wee, and Shengxing Zhang, as well as seminar participants at Edinburgh, LSE, NYU, Princeton and the SED.