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Capital Values, Job Valuesand the Joint Behavior of Hiring and Investment
Eran YashivTel Aviv University
SF Macro conference, JerusalemJune 22, 2014
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 1 / 71
MOTIVATION AND KEY IDEAS
MOTIVATION AND KEY IDEAS
This paper explores how the joint behavior of hiring andinvestment is governed by capital and job values.
It uses a model of frictions:akin to search models of the labor market;Q-type models of the capital market;it emphasizes the interaction of capital and labor frictions.Relying on structural estimation of private sector U.S. data, itstudies their cyclical behavior, their future determinants and theimplications for U.S. labor market developments.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 2 / 71
MOTIVATION AND KEY IDEAS
MOTIVATION AND KEY IDEAS
This paper explores how the joint behavior of hiring andinvestment is governed by capital and job values.It uses a model of frictions:
akin to search models of the labor market;Q-type models of the capital market;it emphasizes the interaction of capital and labor frictions.Relying on structural estimation of private sector U.S. data, itstudies their cyclical behavior, their future determinants and theimplications for U.S. labor market developments.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 2 / 71
MOTIVATION AND KEY IDEAS
MOTIVATION AND KEY IDEAS
This paper explores how the joint behavior of hiring andinvestment is governed by capital and job values.It uses a model of frictions:akin to search models of the labor market;
Q-type models of the capital market;it emphasizes the interaction of capital and labor frictions.Relying on structural estimation of private sector U.S. data, itstudies their cyclical behavior, their future determinants and theimplications for U.S. labor market developments.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 2 / 71
MOTIVATION AND KEY IDEAS
MOTIVATION AND KEY IDEAS
This paper explores how the joint behavior of hiring andinvestment is governed by capital and job values.It uses a model of frictions:akin to search models of the labor market;Q-type models of the capital market;
it emphasizes the interaction of capital and labor frictions.Relying on structural estimation of private sector U.S. data, itstudies their cyclical behavior, their future determinants and theimplications for U.S. labor market developments.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 2 / 71
MOTIVATION AND KEY IDEAS
MOTIVATION AND KEY IDEAS
This paper explores how the joint behavior of hiring andinvestment is governed by capital and job values.It uses a model of frictions:akin to search models of the labor market;Q-type models of the capital market;it emphasizes the interaction of capital and labor frictions.
Relying on structural estimation of private sector U.S. data, itstudies their cyclical behavior, their future determinants and theimplications for U.S. labor market developments.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 2 / 71
MOTIVATION AND KEY IDEAS
MOTIVATION AND KEY IDEAS
This paper explores how the joint behavior of hiring andinvestment is governed by capital and job values.It uses a model of frictions:akin to search models of the labor market;Q-type models of the capital market;it emphasizes the interaction of capital and labor frictions.Relying on structural estimation of private sector U.S. data, itstudies their cyclical behavior, their future determinants and theimplications for U.S. labor market developments.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 2 / 71
MOTIVATION AND KEY IDEAS
(i) how do capital and labor expected present values behave overthe business cycle and what cyclical hiring and investmentpatterns do they generate?
(ii) how big are these values, i.e., how big are the relevantfrictions?(iii) what determinants drive expected present values?(iv) how can recent U.S. labor market developments – includingthe Great Recession period – be understood in terms of capitaland labor (job) values?
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 3 / 71
MOTIVATION AND KEY IDEAS
(i) how do capital and labor expected present values behave overthe business cycle and what cyclical hiring and investmentpatterns do they generate?(ii) how big are these values, i.e., how big are the relevantfrictions?
(iii) what determinants drive expected present values?(iv) how can recent U.S. labor market developments – includingthe Great Recession period – be understood in terms of capitaland labor (job) values?
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 3 / 71
MOTIVATION AND KEY IDEAS
(i) how do capital and labor expected present values behave overthe business cycle and what cyclical hiring and investmentpatterns do they generate?(ii) how big are these values, i.e., how big are the relevantfrictions?(iii) what determinants drive expected present values?
(iv) how can recent U.S. labor market developments – includingthe Great Recession period – be understood in terms of capitaland labor (job) values?
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 3 / 71
MOTIVATION AND KEY IDEAS
(i) how do capital and labor expected present values behave overthe business cycle and what cyclical hiring and investmentpatterns do they generate?(ii) how big are these values, i.e., how big are the relevantfrictions?(iii) what determinants drive expected present values?(iv) how can recent U.S. labor market developments – includingthe Great Recession period – be understood in terms of capitaland labor (job) values?
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 3 / 71
MOTIVATION AND KEY IDEAS
Key findings include:
1 a substantial effect of the expected value of capital on hiring2 cyclical behavior of hiring and of investment are markedly
different3 counter-cyclcial job values, hence counter-cyclcial hiring rates4 future returns series are derived and shown to play a dominant
role in determining capital and job values5 U.S. labor market developments, including the inward and
subsequent, Great Recession outward shift of the Beveridge curvecan be accounted for by changes in job values
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 4 / 71
MOTIVATION AND KEY IDEAS
Key findings include:
1 a substantial effect of the expected value of capital on hiring
2 cyclical behavior of hiring and of investment are markedlydifferent
3 counter-cyclcial job values, hence counter-cyclcial hiring rates4 future returns series are derived and shown to play a dominant
role in determining capital and job values5 U.S. labor market developments, including the inward and
subsequent, Great Recession outward shift of the Beveridge curvecan be accounted for by changes in job values
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 4 / 71
MOTIVATION AND KEY IDEAS
Key findings include:
1 a substantial effect of the expected value of capital on hiring2 cyclical behavior of hiring and of investment are markedly
different
3 counter-cyclcial job values, hence counter-cyclcial hiring rates4 future returns series are derived and shown to play a dominant
role in determining capital and job values5 U.S. labor market developments, including the inward and
subsequent, Great Recession outward shift of the Beveridge curvecan be accounted for by changes in job values
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 4 / 71
MOTIVATION AND KEY IDEAS
Key findings include:
1 a substantial effect of the expected value of capital on hiring2 cyclical behavior of hiring and of investment are markedly
different3 counter-cyclcial job values, hence counter-cyclcial hiring rates
4 future returns series are derived and shown to play a dominantrole in determining capital and job values
5 U.S. labor market developments, including the inward andsubsequent, Great Recession outward shift of the Beveridge curvecan be accounted for by changes in job values
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 4 / 71
MOTIVATION AND KEY IDEAS
Key findings include:
1 a substantial effect of the expected value of capital on hiring2 cyclical behavior of hiring and of investment are markedly
different3 counter-cyclcial job values, hence counter-cyclcial hiring rates4 future returns series are derived and shown to play a dominant
role in determining capital and job values
5 U.S. labor market developments, including the inward andsubsequent, Great Recession outward shift of the Beveridge curvecan be accounted for by changes in job values
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 4 / 71
MOTIVATION AND KEY IDEAS
Key findings include:
1 a substantial effect of the expected value of capital on hiring2 cyclical behavior of hiring and of investment are markedly
different3 counter-cyclcial job values, hence counter-cyclcial hiring rates4 future returns series are derived and shown to play a dominant
role in determining capital and job values5 U.S. labor market developments, including the inward and
subsequent, Great Recession outward shift of the Beveridge curvecan be accounted for by changes in job values
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 4 / 71
LITERATURE
LITERATURE
For the labor part – search and matching models (e.g. Pissarides2000)
Investment models – seminal: Lucas (JPE 1967) and Lucas andPrescott (Econometrica 1971); Tobin (JMCB 1969) and Brainardand Tobin (AER 1968); Hayashi (Econometrica 1982).Immediate antecedents: Yashiv (RED 2000); Merz and Yashiv(AER 2007)Recent related: Hall (NBER WP 2014)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 5 / 71
LITERATURE
LITERATURE
For the labor part – search and matching models (e.g. Pissarides2000)Investment models – seminal: Lucas (JPE 1967) and Lucas andPrescott (Econometrica 1971); Tobin (JMCB 1969) and Brainardand Tobin (AER 1968); Hayashi (Econometrica 1982).
Immediate antecedents: Yashiv (RED 2000); Merz and Yashiv(AER 2007)Recent related: Hall (NBER WP 2014)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 5 / 71
LITERATURE
LITERATURE
For the labor part – search and matching models (e.g. Pissarides2000)Investment models – seminal: Lucas (JPE 1967) and Lucas andPrescott (Econometrica 1971); Tobin (JMCB 1969) and Brainardand Tobin (AER 1968); Hayashi (Econometrica 1982).Immediate antecedents: Yashiv (RED 2000); Merz and Yashiv(AER 2007)
Recent related: Hall (NBER WP 2014)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 5 / 71
LITERATURE
LITERATURE
For the labor part – search and matching models (e.g. Pissarides2000)Investment models – seminal: Lucas (JPE 1967) and Lucas andPrescott (Econometrica 1971); Tobin (JMCB 1969) and Brainardand Tobin (AER 1968); Hayashi (Econometrica 1982).Immediate antecedents: Yashiv (RED 2000); Merz and Yashiv(AER 2007)Recent related: Hall (NBER WP 2014)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 5 / 71
LITERATURE
Mutual dependence of hiring and investment and the interactionof their costs – Mortensen (Econometrica 1973);
some empirical treatments: Nadiri and Rosen (AER 1969), Shapiro(QJE 1986), and Hall (QJE 2004).Relevant asset pricing literature – Campbell and Shiller (RFS1988); Cochrane (book 2005, JF 2011)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 6 / 71
LITERATURE
Mutual dependence of hiring and investment and the interactionof their costs – Mortensen (Econometrica 1973);some empirical treatments: Nadiri and Rosen (AER 1969), Shapiro(QJE 1986), and Hall (QJE 2004).
Relevant asset pricing literature – Campbell and Shiller (RFS1988); Cochrane (book 2005, JF 2011)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 6 / 71
LITERATURE
Mutual dependence of hiring and investment and the interactionof their costs – Mortensen (Econometrica 1973);some empirical treatments: Nadiri and Rosen (AER 1969), Shapiro(QJE 1986), and Hall (QJE 2004).Relevant asset pricing literature – Campbell and Shiller (RFS1988); Cochrane (book 2005, JF 2011)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 6 / 71
THE MODEL
THE MODEL
F.O.C (PE model) for both i and h
yt = f (zt,nt, kt), (1)
kt+1 = (1� δt)kt + it, 0 � δt � 1. (2)
nt+1 = (1� ψt)nt + ht, 0 � ψt � 1. (3)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 7 / 71
THE MODEL
THE MODEL
F.O.C (PE model) for both i and h
yt = f (zt,nt, kt), (1)
kt+1 = (1� δt)kt + it, 0 � δt � 1. (2)
nt+1 = (1� ψt)nt + ht, 0 � ψt � 1. (3)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 7 / 71
THE MODEL
maxfit+j,ht+jg
Et∑∞
j=0
�∏
ji=0 ρt+i
� 24 (1� τt+j)�f (zt+j,nt+j, kt+j)
�g�it+j, kt+j, ht+j, nt+j
�� wt+jnt+j
���
1� χt+j � τt+jDt+j
� epIt+j it+j
i(4)
s.t. k, n dynamicsThe firm takes the variables w, pI , δ, ψ, and ρ as given.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 8 / 71
THE MODEL
maxfit+j,ht+jg
Et∑∞
j=0
�∏
ji=0 ρt+i
� 24 (1� τt+j)�f (zt+j,nt+j, kt+j)
�g�it+j, kt+j, ht+j, nt+j
�� wt+jnt+j
���
1� χt+j � τt+jDt+j
� epIt+j it+j
i(4)
s.t. k, n dynamics
The firm takes the variables w, pI , δ, ψ, and ρ as given.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 8 / 71
THE MODEL
maxfit+j,ht+jg
Et∑∞
j=0
�∏
ji=0 ρt+i
� 24 (1� τt+j)�f (zt+j,nt+j, kt+j)
�g�it+j, kt+j, ht+j, nt+j
�� wt+jnt+j
���
1� χt+j � τt+jDt+j
� epIt+j it+j
i(4)
s.t. k, n dynamicsThe firm takes the variables w, pI , δ, ψ, and ρ as given.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 8 / 71
THE MODEL
F.O.C. with asset pricing interpretation
(1� τt)�
git + pIt
�| {z }
Pt
= Et
8>>>>><>>>>>:
ρt+1 (1� τt+1)26664fkt+1 � gkt+1| {z }
Dt
+(1� δt+1)(git+1 + pIt+1)| {z }
Pt+1
37775
9>>>>>=>>>>>;(5)
(1� τt) ght| {z }Pt
= Et
8>>>>><>>>>>:
ρt+1 (1� τt+1)26664fnt+1 � gnt+1 � wt+1| {z }
Dt+1
+(1� ψt+1)ght+1|{z}Pt+1
37775
9>>>>>=>>>>>;. (6)
To know what Pt, &Dt are, we need estimates
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 9 / 71
THE MODEL
F.O.C. with asset pricing interpretation
(1� τt)�
git + pIt
�| {z }
Pt
= Et
8>>>>><>>>>>:
ρt+1 (1� τt+1)26664fkt+1 � gkt+1| {z }
Dt
+(1� δt+1)(git+1 + pIt+1)| {z }
Pt+1
37775
9>>>>>=>>>>>;(5)
(1� τt) ght| {z }Pt
= Et
8>>>>><>>>>>:
ρt+1 (1� τt+1)26664fnt+1 � gnt+1 � wt+1| {z }
Dt+1
+(1� ψt+1)ght+1|{z}Pt+1
37775
9>>>>>=>>>>>;. (6)
To know what Pt, &Dt are, we need estimates
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 9 / 71
THE EMPIRICAL STRATEGY
THE EMPIRICAL STRATEGY
These relationships include observables and unobservables.
Unlike stock prices and dividends, the equivalents in terms of thismodel are not observed in the markets.Thus, costs are unobserved directly and need to be inferred byestimating the cost function (g).The estimation of this function allows not only to infer currentmarginal costs but also the present value expected when the firmis following optimal policy
QKt = (1� τt)
�git + pI
t
�(7)
QNt = (1� τt) ght (8)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 10 / 71
THE EMPIRICAL STRATEGY
THE EMPIRICAL STRATEGY
These relationships include observables and unobservables.Unlike stock prices and dividends, the equivalents in terms of thismodel are not observed in the markets.
Thus, costs are unobserved directly and need to be inferred byestimating the cost function (g).The estimation of this function allows not only to infer currentmarginal costs but also the present value expected when the firmis following optimal policy
QKt = (1� τt)
�git + pI
t
�(7)
QNt = (1� τt) ght (8)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 10 / 71
THE EMPIRICAL STRATEGY
THE EMPIRICAL STRATEGY
These relationships include observables and unobservables.Unlike stock prices and dividends, the equivalents in terms of thismodel are not observed in the markets.Thus, costs are unobserved directly and need to be inferred byestimating the cost function (g).
The estimation of this function allows not only to infer currentmarginal costs but also the present value expected when the firmis following optimal policy
QKt = (1� τt)
�git + pI
t
�(7)
QNt = (1� τt) ght (8)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 10 / 71
THE EMPIRICAL STRATEGY
THE EMPIRICAL STRATEGY
These relationships include observables and unobservables.Unlike stock prices and dividends, the equivalents in terms of thismodel are not observed in the markets.Thus, costs are unobserved directly and need to be inferred byestimating the cost function (g).The estimation of this function allows not only to infer currentmarginal costs but also the present value expected when the firmis following optimal policy
QKt = (1� τt)
�git + pI
t
�(7)
QNt = (1� τt) ght (8)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 10 / 71
THE EMPIRICAL STRATEGY
THE EMPIRICAL STRATEGY
These relationships include observables and unobservables.Unlike stock prices and dividends, the equivalents in terms of thismodel are not observed in the markets.Thus, costs are unobserved directly and need to be inferred byestimating the cost function (g).The estimation of this function allows not only to infer currentmarginal costs but also the present value expected when the firmis following optimal policy
QKt = (1� τt)
�git + pI
t
�(7)
QNt = (1� τt) ght (8)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 10 / 71
THE EMPIRICAL STRATEGY
The route to be taken in estimation and the study of itsimplications consists of the following:
1 Structural estimation with quarterly data that pertain to theprivate sector of the U.S. economy, in the period 1976-2011.
2 Comparison of the resulting estimates to the findings in therelevant literatures
3 Use of the estimates to study the relationships of hiring andinvestment rates ( ht
nt, it
kt) and their present values (QN
t , QKt ),
including the cyclical behavior of all relevant variables.4 Decomposition of the two present value terms into their
components.5 The implications of model to the study of recent U.S. labor market
developments
data
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 11 / 71
THE EMPIRICAL STRATEGY
The route to be taken in estimation and the study of itsimplications consists of the following:
1 Structural estimation with quarterly data that pertain to theprivate sector of the U.S. economy, in the period 1976-2011.
2 Comparison of the resulting estimates to the findings in therelevant literatures
3 Use of the estimates to study the relationships of hiring andinvestment rates ( ht
nt, it
kt) and their present values (QN
t , QKt ),
including the cyclical behavior of all relevant variables.4 Decomposition of the two present value terms into their
components.5 The implications of model to the study of recent U.S. labor market
developments
data
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 11 / 71
THE EMPIRICAL STRATEGY
The route to be taken in estimation and the study of itsimplications consists of the following:
1 Structural estimation with quarterly data that pertain to theprivate sector of the U.S. economy, in the period 1976-2011.
2 Comparison of the resulting estimates to the findings in therelevant literatures
3 Use of the estimates to study the relationships of hiring andinvestment rates ( ht
nt, it
kt) and their present values (QN
t , QKt ),
including the cyclical behavior of all relevant variables.4 Decomposition of the two present value terms into their
components.5 The implications of model to the study of recent U.S. labor market
developments
data
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 11 / 71
THE EMPIRICAL STRATEGY
The route to be taken in estimation and the study of itsimplications consists of the following:
1 Structural estimation with quarterly data that pertain to theprivate sector of the U.S. economy, in the period 1976-2011.
2 Comparison of the resulting estimates to the findings in therelevant literatures
3 Use of the estimates to study the relationships of hiring andinvestment rates ( ht
nt, it
kt) and their present values (QN
t , QKt ),
including the cyclical behavior of all relevant variables.
4 Decomposition of the two present value terms into theircomponents.
5 The implications of model to the study of recent U.S. labor marketdevelopments
data
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 11 / 71
THE EMPIRICAL STRATEGY
The route to be taken in estimation and the study of itsimplications consists of the following:
1 Structural estimation with quarterly data that pertain to theprivate sector of the U.S. economy, in the period 1976-2011.
2 Comparison of the resulting estimates to the findings in therelevant literatures
3 Use of the estimates to study the relationships of hiring andinvestment rates ( ht
nt, it
kt) and their present values (QN
t , QKt ),
including the cyclical behavior of all relevant variables.4 Decomposition of the two present value terms into their
components.
5 The implications of model to the study of recent U.S. labor marketdevelopments
data
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 11 / 71
THE EMPIRICAL STRATEGY
The route to be taken in estimation and the study of itsimplications consists of the following:
1 Structural estimation with quarterly data that pertain to theprivate sector of the U.S. economy, in the period 1976-2011.
2 Comparison of the resulting estimates to the findings in therelevant literatures
3 Use of the estimates to study the relationships of hiring andinvestment rates ( ht
nt, it
kt) and their present values (QN
t , QKt ),
including the cyclical behavior of all relevant variables.4 Decomposition of the two present value terms into their
components.5 The implications of model to the study of recent U.S. labor market
developments
data
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 11 / 71
THE EMPIRICAL STRATEGY
The route to be taken in estimation and the study of itsimplications consists of the following:
1 Structural estimation with quarterly data that pertain to theprivate sector of the U.S. economy, in the period 1976-2011.
2 Comparison of the resulting estimates to the findings in therelevant literatures
3 Use of the estimates to study the relationships of hiring andinvestment rates ( ht
nt, it
kt) and their present values (QN
t , QKt ),
including the cyclical behavior of all relevant variables.4 Decomposition of the two present value terms into their
components.5 The implications of model to the study of recent U.S. labor market
developments
data
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 11 / 71
RESULTS
RESULTS
GMM estimation of the two F.O.C
Functions
f (zt,nt, kt) = ezt ntαk1�α
t , 0 < α < 1. (9)
g(�) =
266664f1
itkt+ f2
htnt
+ e1η1( it
kt)η1
+ e2η2( ht
nt)η2
+ e3η3
�itkt
htnt
�η3
377775 f (zt, nt, kt). (10)
Estimate scale ( f1, f2, e1, e2, e3) and power (η1, η2, η3) parametersPreferred specification: f� standard α estimate (0.67), g� nolinear terms, quadratic η1 = η2 = 2, linear interaction η3 = 1
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 12 / 71
RESULTS
RESULTS
GMM estimation of the two F.O.CFunctions
f (zt,nt, kt) = ezt ntαk1�α
t , 0 < α < 1. (9)
g(�) =
266664f1
itkt+ f2
htnt
+ e1η1( it
kt)η1
+ e2η2( ht
nt)η2
+ e3η3
�itkt
htnt
�η3
377775 f (zt, nt, kt). (10)
Estimate scale ( f1, f2, e1, e2, e3) and power (η1, η2, η3) parametersPreferred specification: f� standard α estimate (0.67), g� nolinear terms, quadratic η1 = η2 = 2, linear interaction η3 = 1
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 12 / 71
RESULTS
RESULTS
GMM estimation of the two F.O.CFunctions
f (zt,nt, kt) = ezt ntαk1�α
t , 0 < α < 1. (9)
g(�) =
266664f1
itkt+ f2
htnt
+ e1η1( it
kt)η1
+ e2η2( ht
nt)η2
+ e3η3
�itkt
htnt
�η3
377775 f (zt, nt, kt). (10)
Estimate scale ( f1, f2, e1, e2, e3) and power (η1, η2, η3) parametersPreferred specification: f� standard α estimate (0.67), g� nolinear terms, quadratic η1 = η2 = 2, linear interaction η3 = 1
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 12 / 71
RESULTS
RESULTS
GMM estimation of the two F.O.CFunctions
f (zt,nt, kt) = ezt ntαk1�α
t , 0 < α < 1. (9)
g(�) =
266664f1
itkt+ f2
htnt
+ e1η1( it
kt)η1
+ e2η2( ht
nt)η2
+ e3η3
�itkt
htnt
�η3
377775 f (zt, nt, kt). (10)
Estimate scale ( f1, f2, e1, e2, e3) and power (η1, η2, η3) parameters
Preferred specification: f� standard α estimate (0.67), g� nolinear terms, quadratic η1 = η2 = 2, linear interaction η3 = 1
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 12 / 71
RESULTS
RESULTS
GMM estimation of the two F.O.CFunctions
f (zt,nt, kt) = ezt ntαk1�α
t , 0 < α < 1. (9)
g(�) =
266664f1
itkt+ f2
htnt
+ e1η1( it
kt)η1
+ e2η2( ht
nt)η2
+ e3η3
�itkt
htnt
�η3
377775 f (zt, nt, kt). (10)
Estimate scale ( f1, f2, e1, e2, e3) and power (η1, η2, η3) parametersPreferred specification: f� standard α estimate (0.67), g� nolinear terms, quadratic η1 = η2 = 2, linear interaction η3 = 1
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 12 / 71
RESULTS
In the preferred specification total costs are 1.4% of GDP onaverage, with a standard deviation of 0.2%.
Marginal investment costs add about 6% on average to the pricepI
t of a unit of capitalMarginal hiring costs are on average the equivalent of 1.6 weeksof wages.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 13 / 71
RESULTS
In the preferred specification total costs are 1.4% of GDP onaverage, with a standard deviation of 0.2%.Marginal investment costs add about 6% on average to the pricepI
t of a unit of capital
Marginal hiring costs are on average the equivalent of 1.6 weeksof wages.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 13 / 71
RESULTS
In the preferred specification total costs are 1.4% of GDP onaverage, with a standard deviation of 0.2%.Marginal investment costs add about 6% on average to the pricepI
t of a unit of capitalMarginal hiring costs are on average the equivalent of 1.6 weeksof wages.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 13 / 71
RESULTS
The standard specifications posit higher costs, up to 3% of output.
High costs of investment (2.33 or even 1.39 vs 0.75)In other words, 17% to be added to pI (vs. 6%)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 14 / 71
RESULTS
The standard specifications posit higher costs, up to 3% of output.High costs of investment (2.33 or even 1.39 vs 0.75)
In other words, 17% to be added to pI (vs. 6%)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 14 / 71
RESULTS
The standard specifications posit higher costs, up to 3% of output.High costs of investment (2.33 or even 1.39 vs 0.75)In other words, 17% to be added to pI (vs. 6%)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 14 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
HIRING, INVESTMENT AND THEIR PRESENT VALUES
Using η1 = η2 = 2, η3 = 1
ht
nt=
1(1� τt)(e1e2 � e2
3)
e1
QNt
ftnt
� e3QK
tftkt
+ e3(1� τt)pI
tftkt
!(11)
it
kt=
1(1� τt)(e1e2 � e2
3)
�e3
QNt
ftnt
+ e2QK
tftkt
� e2(1� τt)pI
tftkt
!(12)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 15 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
ht
nt=
1(e1e2 � e2
3)
e1
ghtftnt
� e3gitftkt
!
1 2htnt
�e1
e1e2�e23
�ght
ftnt
��e3
e1e2�e23
�gitftkt
1 mean 0.13 relative mean 0.58 0.42
2 std 0.01 relative var 7.9 3.9
3 relative cova �5.38
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 16 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
it
kt=
1(e1e2 � e2
3)
�e3
ghtftnt
+ e2gitftkt
!
1 2itkt
��e3
e1e2�e23
�ght
ftnt
�e2
e1e2�e23
�gitftkt
1 mean 0.02 relative mean 0.32 0.68
2 std 0.003 relative var 0.85 3.50
3 relative cova �1.67
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 17 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
It ensues that the cross effects are asymmetric: the investmentterms play a bigger role in hiring than the hiring terms ininvestment.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 18 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
The scope statistic g(0, hn )+g( i
k ,0)�g( ik , h
n )
g( ik , h
n )
The cost of doing investment and hiring sequentially(g(0, h
n ) + g( ik , 0)) sums up to about 3.3% of GDP;
the cost of doing them simultaneously is about 1.4% of GDP, i.e., itis 1.9% of GDP cheaper.e3 < 0, there is complementarity: higher investment (hiring)lowers hiring (investment) costs
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 19 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
The scope statistic g(0, hn )+g( i
k ,0)�g( ik , h
n )
g( ik , h
n )
The cost of doing investment and hiring sequentially(g(0, h
n ) + g( ik , 0)) sums up to about 3.3% of GDP;
the cost of doing them simultaneously is about 1.4% of GDP, i.e., itis 1.9% of GDP cheaper.e3 < 0, there is complementarity: higher investment (hiring)lowers hiring (investment) costs
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 19 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
The scope statistic g(0, hn )+g( i
k ,0)�g( ik , h
n )
g( ik , h
n )
The cost of doing investment and hiring sequentially(g(0, h
n ) + g( ik , 0)) sums up to about 3.3% of GDP;
the cost of doing them simultaneously is about 1.4% of GDP, i.e., itis 1.9% of GDP cheaper.
e3 < 0, there is complementarity: higher investment (hiring)lowers hiring (investment) costs
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 19 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
The scope statistic g(0, hn )+g( i
k ,0)�g( ik , h
n )
g( ik , h
n )
The cost of doing investment and hiring sequentially(g(0, h
n ) + g( ik , 0)) sums up to about 3.3% of GDP;
the cost of doing them simultaneously is about 1.4% of GDP, i.e., itis 1.9% of GDP cheaper.e3 < 0, there is complementarity: higher investment (hiring)lowers hiring (investment) costs
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 19 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
Investment is very highly elastic with respect to the present valueof investing QK;
Hiring has much lower elasticity, lower than unitary, with respectto its present value QN .The cross elasticities are:low for investment w.r.t QN
high for hiring w.r.t QK.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 20 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
Investment is very highly elastic with respect to the present valueof investing QK;Hiring has much lower elasticity, lower than unitary, with respectto its present value QN .
The cross elasticities are:low for investment w.r.t QN
high for hiring w.r.t QK.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 20 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
Investment is very highly elastic with respect to the present valueof investing QK;Hiring has much lower elasticity, lower than unitary, with respectto its present value QN .The cross elasticities are:
low for investment w.r.t QN
high for hiring w.r.t QK.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 20 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
Investment is very highly elastic with respect to the present valueof investing QK;Hiring has much lower elasticity, lower than unitary, with respectto its present value QN .The cross elasticities are:low for investment w.r.t QN
high for hiring w.r.t QK.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 20 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
Investment is very highly elastic with respect to the present valueof investing QK;Hiring has much lower elasticity, lower than unitary, with respectto its present value QN .The cross elasticities are:low for investment w.r.t QN
high for hiring w.r.t QK.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 20 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
Correlation of�
ik , h
n
�or of
�QK, QN� need not be positive though
Suppose, for example, QK rises while QN declines, as in part ofthe U.S. sample period.The rise in QK will lead to higher investment and higher hiring,while the fall in QN will lead to lower investment and lowerhiring.The elasticity estimates imply that the QK movements and the QN
movements engender different responses.Therefore it is possible that investment will rise with the rise inQK while hiring falls with the fall in QN .
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 21 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
Correlation of�
ik , h
n
�or of
�QK, QN� need not be positive though
Suppose, for example, QK rises while QN declines, as in part ofthe U.S. sample period.
The rise in QK will lead to higher investment and higher hiring,while the fall in QN will lead to lower investment and lowerhiring.The elasticity estimates imply that the QK movements and the QN
movements engender different responses.Therefore it is possible that investment will rise with the rise inQK while hiring falls with the fall in QN .
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 21 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
Correlation of�
ik , h
n
�or of
�QK, QN� need not be positive though
Suppose, for example, QK rises while QN declines, as in part ofthe U.S. sample period.The rise in QK will lead to higher investment and higher hiring,while the fall in QN will lead to lower investment and lowerhiring.
The elasticity estimates imply that the QK movements and the QN
movements engender different responses.Therefore it is possible that investment will rise with the rise inQK while hiring falls with the fall in QN .
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 21 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
Correlation of�
ik , h
n
�or of
�QK, QN� need not be positive though
Suppose, for example, QK rises while QN declines, as in part ofthe U.S. sample period.The rise in QK will lead to higher investment and higher hiring,while the fall in QN will lead to lower investment and lowerhiring.The elasticity estimates imply that the QK movements and the QN
movements engender different responses.
Therefore it is possible that investment will rise with the rise inQK while hiring falls with the fall in QN .
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 21 / 71
RESULTS HIRING, INVESTMENT AND THEIR PRESENT VALUES
Correlation of�
ik , h
n
�or of
�QK, QN� need not be positive though
Suppose, for example, QK rises while QN declines, as in part ofthe U.S. sample period.The rise in QK will lead to higher investment and higher hiring,while the fall in QN will lead to lower investment and lowerhiring.The elasticity estimates imply that the QK movements and the QN
movements engender different responses.Therefore it is possible that investment will rise with the rise inQK while hiring falls with the fall in QN .
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 21 / 71
RESULTS CO-MOVEMENT AND CYCLICAL ANALYSIS
CO-MOVEMENT AND CYCLICAL ANALYSIS
2.20
2.15
2.10
2.05
2.00
1.95
1.90
1.85
1.80
.08
.06
.04
.02
.00
.02
.04
.06
.08
1975 1980 1985 1990 1995 2000 2005 2010
ln (h/n) levels (left axis)ln (h/n) HP filtered (right axis)
Log Hiring Rates (levels and HP filtered).
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 22 / 71
RESULTS CO-MOVEMENT AND CYCLICAL ANALYSIS
4.2
4.1
4.0
3.9
3.8
3.7
3.6
3.5
.20
.15
.10
.05
.00
.05
.10
.15
1975 1980 1985 1990 1995 2000 2005 2010
ln (i/k) levels (left axis)ln (i/k) HP filtered (right axis)
Log Investment Rates (levels and HP filtered).
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 23 / 71
RESULTS CO-MOVEMENT AND CYCLICAL ANALYSIS
Hiring ρ( htnt
, yt+i)
HP filtered (λ = 1600)lag/lead �8 �4 �1 0 1 4 8
f �0.15 �0.30 �0.34 �0.25 �0.12 0.17 0.20fn �0.13 �0.20 �0.11 �0.04 0.05 0.21 0.09fk �0.18 �0.31 �0.30 �0.19 �0.07 0.22 0.19
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 24 / 71
RESULTS CO-MOVEMENT AND CYCLICAL ANALYSIS
Investment ρ( itkt
, yt+i)
HP filtered (λ = 1600)lag/lead -8 -4 -1 0 1 4 8
f 0.10 0.50 0.84 0.79 0.63 �0.03 �0.40fn 0.10 0.62 0.63 0.50 0.29 �0.34 �0.44fk �0.06 0.60 0.84 0.75 0.55 �0.17 �0.49
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 25 / 71
RESULTS CO-MOVEMENT AND CYCLICAL ANALYSIS
Marginal costs of investment are pro-cyclical, and co-movepositively with the investment rate.
Marginal costs of hiring are counter-cyclical and co-movepositively with the hiring rate.This is true across the three cyclical measures and the two filteringmethods.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 26 / 71
RESULTS CO-MOVEMENT AND CYCLICAL ANALYSIS
Marginal costs of investment are pro-cyclical, and co-movepositively with the investment rate.Marginal costs of hiring are counter-cyclical and co-movepositively with the hiring rate.
This is true across the three cyclical measures and the two filteringmethods.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 26 / 71
RESULTS CO-MOVEMENT AND CYCLICAL ANALYSIS
Marginal costs of investment are pro-cyclical, and co-movepositively with the investment rate.Marginal costs of hiring are counter-cyclical and co-movepositively with the hiring rate.This is true across the three cyclical measures and the two filteringmethods.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 26 / 71
RESULTS CO-MOVEMENT AND CYCLICAL ANALYSIS
EXPLAINING COUNTERCYLICAL HIRING RATES
ht
nt=
ht
ut + ot
ut + ot
POPt
POPt
nt
=ht
ut + ot
ψht
ut+ot+ ψ
1nt
POPt
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 27 / 71
RESULTS CO-MOVEMENT AND CYCLICAL ANALYSIS
Co-Movement (contemporaneous) with Cyclical Indicators
logged, HP filtered
nthtnt
htut+ot
ψht
ut+ot+ψ
1nt
POPt
with GDP f 0.81 �0.25 0.53 �0.39 �0.82with labor productivity f
n 0.42 �0.04 0.38 �0.31 �0.46
So counter-cyclicality of ψht
ut+ot+ψ
, 1nt
POPt
dominates pro-cylicality of
job finding htut+ot
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 28 / 71
RESULTS CO-MOVEMENT AND CYCLICAL ANALYSIS
Co-Movement (contemporaneous) with Cyclical Indicatorslogged, HP filtered
nthtnt
htut+ot
ψht
ut+ot+ψ
1nt
POPt
with GDP f 0.81 �0.25 0.53 �0.39 �0.82with labor productivity f
n 0.42 �0.04 0.38 �0.31 �0.46
So counter-cyclicality of ψht
ut+ot+ψ
, 1nt
POPt
dominates pro-cylicality of
job finding htut+ot
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 28 / 71
RESULTS CO-MOVEMENT AND CYCLICAL ANALYSIS
Co-Movement (contemporaneous) with Cyclical Indicatorslogged, HP filtered
nthtnt
htut+ot
ψht
ut+ot+ψ
1nt
POPt
with GDP f 0.81 �0.25 0.53 �0.39 �0.82with labor productivity f
n 0.42 �0.04 0.38 �0.31 �0.46
So counter-cyclicality of ψht
ut+ot+ψ
, 1nt
POPt
dominates pro-cylicality of
job finding htut+ot
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 28 / 71
RESULTS CO-MOVEMENT AND CYCLICAL ANALYSIS
Co-Movement (contemporaneous) with Cyclical Indicatorslogged, HP filtered
nthtnt
htut+ot
ψht
ut+ot+ψ
1nt
POPt
with GDP f 0.81 �0.25 0.53 �0.39 �0.82with labor productivity f
n 0.42 �0.04 0.38 �0.31 �0.46
So counter-cyclicality of ψht
ut+ot+ψ
, 1nt
POPt
dominates pro-cylicality of
job finding htut+ot
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 28 / 71
RESULTS JOB VALUES ACROSS MODELS
JOB VALUES ACROSS MODELS
The standard search and matching model also posits aformulation of QN , which is the value of the job match.
QNt,search = (1� τt)c
1qt
(13)
In the current set-up the formulation is given by:
QNt
ftnt
= (1� τt) ght = (1� τt)
"e2(
ht
nt)η2�1 + e3
�it
kt
�η3 ht
nt
η3�1#(14)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 29 / 71
RESULTS JOB VALUES ACROSS MODELS
JOB VALUES ACROSS MODELS
The standard search and matching model also posits aformulation of QN , which is the value of the job match.
QNt,search = (1� τt)c
1qt
(13)
In the current set-up the formulation is given by:
QNt
ftnt
= (1� τt) ght = (1� τt)
"e2(
ht
nt)η2�1 + e3
�it
kt
�η3 ht
nt
η3�1#(14)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 29 / 71
RESULTS JOB VALUES ACROSS MODELS
JOB VALUES ACROSS MODELS
The standard search and matching model also posits aformulation of QN , which is the value of the job match.
QNt,search = (1� τt)c
1qt
(13)
In the current set-up the formulation is given by:
QNt
ftnt
= (1� τt) ght = (1� τt)
"e2(
ht
nt)η2�1 + e3
�it
kt
�η3 ht
nt
η3�1#(14)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 29 / 71
RESULTS JOB VALUES ACROSS MODELS
JOB VALUES ACROSS MODELS
The standard search and matching model also posits aformulation of QN , which is the value of the job match.
QNt,search = (1� τt)c
1qt
(13)
In the current set-up the formulation is given by:
QNt
ftnt
= (1� τt) ght = (1� τt)
"e2(
ht
nt)η2�1 + e3
�it
kt
�η3 ht
nt
η3�1#(14)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 29 / 71
RESULTS JOB VALUES ACROSS MODELS
It is already clear from the comparison of (13) and (14) that
QNt,search and QN
tftnt
behave differently.
The former is a positive function of vtht
and is likely to bepro-cyclical.The latter is a positive function of ht
ntand a negative function of it
kt,
given the estimates of a negative e3.It will thus be counter-cyclical, as ht
ntis counter-cyclical and it
ktis
pro-cyclical.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 30 / 71
RESULTS JOB VALUES ACROSS MODELS
It is already clear from the comparison of (13) and (14) that
QNt,search and QN
tftnt
behave differently.
The former is a positive function of vtht
and is likely to bepro-cyclical.
The latter is a positive function of htnt
and a negative function of itkt
,given the estimates of a negative e3.It will thus be counter-cyclical, as ht
ntis counter-cyclical and it
ktis
pro-cyclical.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 30 / 71
RESULTS JOB VALUES ACROSS MODELS
It is already clear from the comparison of (13) and (14) that
QNt,search and QN
tftnt
behave differently.
The former is a positive function of vtht
and is likely to bepro-cyclical.The latter is a positive function of ht
ntand a negative function of it
kt,
given the estimates of a negative e3.
It will thus be counter-cyclical, as htnt
is counter-cyclical and itkt
ispro-cyclical.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 30 / 71
RESULTS JOB VALUES ACROSS MODELS
It is already clear from the comparison of (13) and (14) that
QNt,search and QN
tftnt
behave differently.
The former is a positive function of vtht
and is likely to bepro-cyclical.The latter is a positive function of ht
ntand a negative function of it
kt,
given the estimates of a negative e3.It will thus be counter-cyclical, as ht
ntis counter-cyclical and it
ktis
pro-cyclical.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 30 / 71
RESULTS JOB VALUES ACROSS MODELS
.00
.02
.04
.06
.08
.10
.12
.14
.16
1980 1985 1990 1995 2000 2005 2010
standard S&M modelpreferredlinear hiring costs
Figure 2: Job Values (QN) across models
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 31 / 71
RESULTS JOB VALUES ACROSS MODELS
The reason for this difference:
The standard search model formulates vacancy costs as a functionof their duration 1
qt
without assigning any variability to marginal costs – they arefixed at c.It ignores capital and any other variable that varies over time.Vacancy duration is pro-cyclical, hence job values are too.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 32 / 71
RESULTS JOB VALUES ACROSS MODELS
The reason for this difference:The standard search model formulates vacancy costs as a functionof their duration 1
qt
without assigning any variability to marginal costs – they arefixed at c.It ignores capital and any other variable that varies over time.Vacancy duration is pro-cyclical, hence job values are too.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 32 / 71
RESULTS JOB VALUES ACROSS MODELS
The reason for this difference:The standard search model formulates vacancy costs as a functionof their duration 1
qt
without assigning any variability to marginal costs – they arefixed at c.
It ignores capital and any other variable that varies over time.Vacancy duration is pro-cyclical, hence job values are too.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 32 / 71
RESULTS JOB VALUES ACROSS MODELS
The reason for this difference:The standard search model formulates vacancy costs as a functionof their duration 1
qt
without assigning any variability to marginal costs – they arefixed at c.It ignores capital and any other variable that varies over time.
Vacancy duration is pro-cyclical, hence job values are too.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 32 / 71
RESULTS JOB VALUES ACROSS MODELS
The reason for this difference:The standard search model formulates vacancy costs as a functionof their duration 1
qt
without assigning any variability to marginal costs – they arefixed at c.It ignores capital and any other variable that varies over time.Vacancy duration is pro-cyclical, hence job values are too.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 32 / 71
RESULTS JOB VALUES ACROSS MODELS
The current model captures the entire recruiting process (fromvacancy creation to the training of the hired workers) in theconvex g function
defined over the hiring rate htnt
and the investment rate itkt
.This formulation of costs follows the “tradition” of theLucas-Prescott and of the Tobin-Brainard (Q) models, wherebycosts and expected values rise with the activity in question.Importantly it is defined over the actual hiring rate.Hiring activity rises when job values rise; this means marginalcosts rise.We can infer counter-cyclical job values from counter-cyclicalhiring rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 33 / 71
RESULTS JOB VALUES ACROSS MODELS
The current model captures the entire recruiting process (fromvacancy creation to the training of the hired workers) in theconvex g functiondefined over the hiring rate ht
ntand the investment rate it
kt.
This formulation of costs follows the “tradition” of theLucas-Prescott and of the Tobin-Brainard (Q) models, wherebycosts and expected values rise with the activity in question.Importantly it is defined over the actual hiring rate.Hiring activity rises when job values rise; this means marginalcosts rise.We can infer counter-cyclical job values from counter-cyclicalhiring rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 33 / 71
RESULTS JOB VALUES ACROSS MODELS
The current model captures the entire recruiting process (fromvacancy creation to the training of the hired workers) in theconvex g functiondefined over the hiring rate ht
ntand the investment rate it
kt.
This formulation of costs follows the “tradition” of theLucas-Prescott and of the Tobin-Brainard (Q) models, wherebycosts and expected values rise with the activity in question.
Importantly it is defined over the actual hiring rate.Hiring activity rises when job values rise; this means marginalcosts rise.We can infer counter-cyclical job values from counter-cyclicalhiring rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 33 / 71
RESULTS JOB VALUES ACROSS MODELS
The current model captures the entire recruiting process (fromvacancy creation to the training of the hired workers) in theconvex g functiondefined over the hiring rate ht
ntand the investment rate it
kt.
This formulation of costs follows the “tradition” of theLucas-Prescott and of the Tobin-Brainard (Q) models, wherebycosts and expected values rise with the activity in question.Importantly it is defined over the actual hiring rate.
Hiring activity rises when job values rise; this means marginalcosts rise.We can infer counter-cyclical job values from counter-cyclicalhiring rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 33 / 71
RESULTS JOB VALUES ACROSS MODELS
The current model captures the entire recruiting process (fromvacancy creation to the training of the hired workers) in theconvex g functiondefined over the hiring rate ht
ntand the investment rate it
kt.
This formulation of costs follows the “tradition” of theLucas-Prescott and of the Tobin-Brainard (Q) models, wherebycosts and expected values rise with the activity in question.Importantly it is defined over the actual hiring rate.Hiring activity rises when job values rise; this means marginalcosts rise.
We can infer counter-cyclical job values from counter-cyclicalhiring rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 33 / 71
RESULTS JOB VALUES ACROSS MODELS
The current model captures the entire recruiting process (fromvacancy creation to the training of the hired workers) in theconvex g functiondefined over the hiring rate ht
ntand the investment rate it
kt.
This formulation of costs follows the “tradition” of theLucas-Prescott and of the Tobin-Brainard (Q) models, wherebycosts and expected values rise with the activity in question.Importantly it is defined over the actual hiring rate.Hiring activity rises when job values rise; this means marginalcosts rise.We can infer counter-cyclical job values from counter-cyclicalhiring rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 33 / 71
RESULTS JOB VALUES ACROSS MODELS
Evidence for counter-cyclical job values.
QNt
ftnt
=
Et
"ρt+1
ft+1nt+1
ftnt
"(1� τt+1)
α�wt+1
ft+1nt+1
� gnt+1ft+1nt+1
!+�1� ψt+1
� QNt+1
ft+1nt+1
##
QNt
ftnt
= Et ∑∞j=0
266666664
�∏
ji=0 ρt+1+i
� ∏
ji=0
ft+i+1nt+i+1
ft+int+i
!�
∏ji=0
�1� ψt+1+i
�� �1� τt+1+j
� α�wt+1+j
ft+1+jnt+1+j
� gnt+1+j
!
377777775So future
α�wt+1+j
ft+1+jnt+1+j
!plays a role
One can approximate RHS with truncated sum of actual values
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 34 / 71
RESULTS JOB VALUES ACROSS MODELS
Evidence for counter-cyclical job values.QN
tftnt
=
Et
"ρt+1
ft+1nt+1
ftnt
"(1� τt+1)
α�wt+1
ft+1nt+1
� gnt+1ft+1nt+1
!+�1� ψt+1
� QNt+1
ft+1nt+1
##
QNt
ftnt
= Et ∑∞j=0
266666664
�∏
ji=0 ρt+1+i
� ∏
ji=0
ft+i+1nt+i+1
ft+int+i
!�
∏ji=0
�1� ψt+1+i
�� �1� τt+1+j
� α�wt+1+j
ft+1+jnt+1+j
� gnt+1+j
!
377777775So future
α�wt+1+j
ft+1+jnt+1+j
!plays a role
One can approximate RHS with truncated sum of actual values
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 34 / 71
RESULTS JOB VALUES ACROSS MODELS
Evidence for counter-cyclical job values.QN
tftnt
=
Et
"ρt+1
ft+1nt+1
ftnt
"(1� τt+1)
α�wt+1
ft+1nt+1
� gnt+1ft+1nt+1
!+�1� ψt+1
� QNt+1
ft+1nt+1
##
QNt
ftnt
= Et ∑∞j=0
266666664
�∏
ji=0 ρt+1+i
� ∏
ji=0
ft+i+1nt+i+1
ft+int+i
!�
∏ji=0
�1� ψt+1+i
�� �1� τt+1+j
� α�wt+1+j
ft+1+jnt+1+j
� gnt+1+j
!
377777775
So future
α�wt+1+j
ft+1+jnt+1+j
!plays a role
One can approximate RHS with truncated sum of actual values
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 34 / 71
RESULTS JOB VALUES ACROSS MODELS
Evidence for counter-cyclical job values.QN
tftnt
=
Et
"ρt+1
ft+1nt+1
ftnt
"(1� τt+1)
α�wt+1
ft+1nt+1
� gnt+1ft+1nt+1
!+�1� ψt+1
� QNt+1
ft+1nt+1
##
QNt
ftnt
= Et ∑∞j=0
266666664
�∏
ji=0 ρt+1+i
� ∏
ji=0
ft+i+1nt+i+1
ft+int+i
!�
∏ji=0
�1� ψt+1+i
�� �1� τt+1+j
� α�wt+1+j
ft+1+jnt+1+j
� gnt+1+j
!
377777775So future
α�wt+1+j
ft+1+jnt+1+j
!plays a role
One can approximate RHS with truncated sum of actual values
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 34 / 71
RESULTS JOB VALUES ACROSS MODELS
Evidence for counter-cyclical job values.QN
tftnt
=
Et
"ρt+1
ft+1nt+1
ftnt
"(1� τt+1)
α�wt+1
ft+1nt+1
� gnt+1ft+1nt+1
!+�1� ψt+1
� QNt+1
ft+1nt+1
##
QNt
ftnt
= Et ∑∞j=0
266666664
�∏
ji=0 ρt+1+i
� ∏
ji=0
ft+i+1nt+i+1
ft+int+i
!�
∏ji=0
�1� ψt+1+i
�� �1� τt+1+j
� α�wt+1+j
ft+1+jnt+1+j
� gnt+1+j
!
377777775So future
α�wt+1+j
ft+1+jnt+1+j
!plays a role
One can approximate RHS with truncated sum of actual values
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 34 / 71
RESULTS JOB VALUES ACROSS MODELS
Co-Movement (contemporaneous) with Cyclical Indicators
logged, HP filtered
QNt
ftnt
= (1� τt)ght
ftnt
�̂QN
tftnt
�with GDP f �0.62 �0.47
with labor productivity fn �0.42 �0.50
where
�̂QN
tftnt
�= ∑T
j=0
266666664
�∏
ji=0 ρt+1+i
� ∏
ji=0
ft+i+1nt+i+1
ft+int+i
!�
∏ji=0
�1� ψt+1+i
�� �1� τt+1+j
� α�wt+1+j
ft+1+jnt+1+j
� gnt+1+j
!
377777775
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 35 / 71
RESULTS JOB VALUES ACROSS MODELS
Co-Movement (contemporaneous) with Cyclical Indicatorslogged, HP filtered
QNt
ftnt
= (1� τt)ght
ftnt
�̂QN
tftnt
�with GDP f �0.62 �0.47
with labor productivity fn �0.42 �0.50
where
�̂QN
tftnt
�= ∑T
j=0
266666664
�∏
ji=0 ρt+1+i
� ∏
ji=0
ft+i+1nt+i+1
ft+int+i
!�
∏ji=0
�1� ψt+1+i
�� �1� τt+1+j
� α�wt+1+j
ft+1+jnt+1+j
� gnt+1+j
!
377777775
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 35 / 71
RESULTS JOB VALUES ACROSS MODELS
Co-Movement (contemporaneous) with Cyclical Indicatorslogged, HP filtered
QNt
ftnt
= (1� τt)ght
ftnt
�̂QN
tftnt
�with GDP f �0.62 �0.47
with labor productivity fn �0.42 �0.50
where
�̂QN
tftnt
�= ∑T
j=0
266666664
�∏
ji=0 ρt+1+i
� ∏
ji=0
ft+i+1nt+i+1
ft+int+i
!�
∏ji=0
�1� ψt+1+i
�� �1� τt+1+j
� α�wt+1+j
ft+1+jnt+1+j
� gnt+1+j
!
377777775
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 35 / 71
RESULTS JOB VALUES ACROSS MODELS
Co-Movement (contemporaneous) with Cyclical Indicatorslogged, HP filtered
QNt
ftnt
= (1� τt)ght
ftnt
�̂QN
tftnt
�with GDP f �0.62 �0.47
with labor productivity fn �0.42 �0.50
where
�̂QN
tftnt
�= ∑T
j=0
266666664
�∏
ji=0 ρt+1+i
� ∏
ji=0
ft+i+1nt+i+1
ft+int+i
!�
∏ji=0
�1� ψt+1+i
�� �1� τt+1+j
� α�wt+1+j
ft+1+jnt+1+j
� gnt+1+j
!
377777775
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 35 / 71
RESULTS JOB VALUES ACROSS MODELS
Co-Movement (contemporaneous) with Cyclical Indicatorslogged, HP filtered
QNt
ftnt
= (1� τt)ght
ftnt
�̂QN
tftnt
�with GDP f �0.62 �0.47
with labor productivity fn �0.42 �0.50
where
�̂QN
tftnt
�= ∑T
j=0
266666664
�∏
ji=0 ρt+1+i
� ∏
ji=0
ft+i+1nt+i+1
ft+int+i
!�
∏ji=0
�1� ψt+1+i
�� �1� τt+1+j
� α�wt+1+j
ft+1+jnt+1+j
� gnt+1+j
!
377777775
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 35 / 71
RESULTS JOB VALUES ACROSS MODELS
How does this relate to what we know about the labor share?
Consider the dynamic cyclical behavior of wFN
, logged, HP filtered
j�wfn
�t+j
0 1 4 8 12
with GDP ft �0.39 �0.17 0.37 0.41 0.31with labor productivity ft
nt�0.58 �0.38 0.19 0.35 0.35
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 36 / 71
RESULTS JOB VALUES ACROSS MODELS
How does this relate to what we know about the labor share?Consider the dynamic cyclical behavior of w
FN
, logged, HP filtered
j�wfn
�t+j
0 1 4 8 12
with GDP ft �0.39 �0.17 0.37 0.41 0.31with labor productivity ft
nt�0.58 �0.38 0.19 0.35 0.35
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 36 / 71
RESULTS JOB VALUES ACROSS MODELS
How does this relate to what we know about the labor share?Consider the dynamic cyclical behavior of w
FN
, logged, HP filtered
j�wfn
�t+j
0 1 4 8 12
with GDP ft �0.39 �0.17 0.37 0.41 0.31with labor productivity ft
nt�0.58 �0.38 0.19 0.35 0.35
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 36 / 71
RESULTS JOB VALUES ACROSS MODELS
Contemporaneously the finding of a basic Cobb-Douglasspecification usually is of a counter-cyclical labor share
e.g., Gali, Gertler, Lopez-Salido (REStat 2007) in baseline case,though not strong 0.28Ramey and Nekarda (WP 2013) report similar findings rangingbetween 0.23 to 0.50 depending upon filtering method and wagemeasureThen when adjustments are applied – different productionfunctions, overhead labor, etc. – differences emerge w.r.t cyclicalpatterns
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 37 / 71
RESULTS JOB VALUES ACROSS MODELS
Contemporaneously the finding of a basic Cobb-Douglasspecification usually is of a counter-cyclical labor sharee.g., Gali, Gertler, Lopez-Salido (REStat 2007) in baseline case,though not strong 0.28
Ramey and Nekarda (WP 2013) report similar findings rangingbetween 0.23 to 0.50 depending upon filtering method and wagemeasureThen when adjustments are applied – different productionfunctions, overhead labor, etc. – differences emerge w.r.t cyclicalpatterns
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 37 / 71
RESULTS JOB VALUES ACROSS MODELS
Contemporaneously the finding of a basic Cobb-Douglasspecification usually is of a counter-cyclical labor sharee.g., Gali, Gertler, Lopez-Salido (REStat 2007) in baseline case,though not strong 0.28Ramey and Nekarda (WP 2013) report similar findings rangingbetween 0.23 to 0.50 depending upon filtering method and wagemeasure
Then when adjustments are applied – different productionfunctions, overhead labor, etc. – differences emerge w.r.t cyclicalpatterns
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 37 / 71
RESULTS JOB VALUES ACROSS MODELS
Contemporaneously the finding of a basic Cobb-Douglasspecification usually is of a counter-cyclical labor sharee.g., Gali, Gertler, Lopez-Salido (REStat 2007) in baseline case,though not strong 0.28Ramey and Nekarda (WP 2013) report similar findings rangingbetween 0.23 to 0.50 depending upon filtering method and wagemeasureThen when adjustments are applied – different productionfunctions, overhead labor, etc. – differences emerge w.r.t cyclicalpatterns
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 37 / 71
RESULTS JOB VALUES ACROSS MODELS
Importantly dynamic cross-correlations indicate pro-cyclicality
Rios-Rull and Santaeulalia-Llopis (JME 2010): the labor share firstfalls (rises) in a boom (recession) thereby increasing (decreasing)job profitabilityit subsequently rises for a substantial period of timeRamey and Nekarda (WP 2013) document this in their Figure 2similar numbers to those aboveThey note (fn. 8) that “These dynamic correlations provide a clueas to why Hall (NBER WP 2012) finds a procyclical labor share”
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 38 / 71
RESULTS JOB VALUES ACROSS MODELS
Importantly dynamic cross-correlations indicate pro-cyclicalityRios-Rull and Santaeulalia-Llopis (JME 2010): the labor share firstfalls (rises) in a boom (recession) thereby increasing (decreasing)job profitability
it subsequently rises for a substantial period of timeRamey and Nekarda (WP 2013) document this in their Figure 2similar numbers to those aboveThey note (fn. 8) that “These dynamic correlations provide a clueas to why Hall (NBER WP 2012) finds a procyclical labor share”
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 38 / 71
RESULTS JOB VALUES ACROSS MODELS
Importantly dynamic cross-correlations indicate pro-cyclicalityRios-Rull and Santaeulalia-Llopis (JME 2010): the labor share firstfalls (rises) in a boom (recession) thereby increasing (decreasing)job profitabilityit subsequently rises for a substantial period of time
Ramey and Nekarda (WP 2013) document this in their Figure 2similar numbers to those aboveThey note (fn. 8) that “These dynamic correlations provide a clueas to why Hall (NBER WP 2012) finds a procyclical labor share”
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 38 / 71
RESULTS JOB VALUES ACROSS MODELS
Importantly dynamic cross-correlations indicate pro-cyclicalityRios-Rull and Santaeulalia-Llopis (JME 2010): the labor share firstfalls (rises) in a boom (recession) thereby increasing (decreasing)job profitabilityit subsequently rises for a substantial period of timeRamey and Nekarda (WP 2013) document this in their Figure 2
similar numbers to those aboveThey note (fn. 8) that “These dynamic correlations provide a clueas to why Hall (NBER WP 2012) finds a procyclical labor share”
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 38 / 71
RESULTS JOB VALUES ACROSS MODELS
Importantly dynamic cross-correlations indicate pro-cyclicalityRios-Rull and Santaeulalia-Llopis (JME 2010): the labor share firstfalls (rises) in a boom (recession) thereby increasing (decreasing)job profitabilityit subsequently rises for a substantial period of timeRamey and Nekarda (WP 2013) document this in their Figure 2similar numbers to those above
They note (fn. 8) that “These dynamic correlations provide a clueas to why Hall (NBER WP 2012) finds a procyclical labor share”
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 38 / 71
RESULTS JOB VALUES ACROSS MODELS
Importantly dynamic cross-correlations indicate pro-cyclicalityRios-Rull and Santaeulalia-Llopis (JME 2010): the labor share firstfalls (rises) in a boom (recession) thereby increasing (decreasing)job profitabilityit subsequently rises for a substantial period of timeRamey and Nekarda (WP 2013) document this in their Figure 2similar numbers to those aboveThey note (fn. 8) that “These dynamic correlations provide a clueas to why Hall (NBER WP 2012) finds a procyclical labor share”
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 38 / 71
RESULTS JOB VALUES ACROSS MODELS
So the logic is that in recessionary times, firms, looking into thefuture, expect higher profitability from employing labor. Hence,they increase the rate at which they hire workers.
hiring definitions
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 39 / 71
RESULTS JOB VALUES ACROSS MODELS
So the logic is that in recessionary times, firms, looking into thefuture, expect higher profitability from employing labor. Hence,they increase the rate at which they hire workers.
hiring definitions
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 39 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
FUTURE DETERMINANTS OF JOB AND CAPITAL
VALUES
An Asset Pricing Model
Pt = Et
�R�1
t+1[Dt+1 + Pt+1]�
Campbell-Shiller (RFS 1988): using logs, this asset pricingrelationship can be approximated as:
pt � dt = k+ Et (dt+1 � dt � rt+1 + ρ(pt+1 � dt+1)) (15)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 40 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
FUTURE DETERMINANTS OF JOB AND CAPITAL
VALUES
An Asset Pricing Model
Pt = Et
�R�1
t+1[Dt+1 + Pt+1]�
Campbell-Shiller (RFS 1988): using logs, this asset pricingrelationship can be approximated as:
pt � dt = k+ Et (dt+1 � dt � rt+1 + ρ(pt+1 � dt+1)) (15)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 40 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
FUTURE DETERMINANTS OF JOB AND CAPITAL
VALUES
An Asset Pricing Model
Pt = Et
�R�1
t+1[Dt+1 + Pt+1]�
Campbell-Shiller (RFS 1988): using logs, this asset pricingrelationship can be approximated as:
pt � dt = k+ Et (dt+1 � dt � rt+1 + ρ(pt+1 � dt+1)) (15)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 40 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Implementing the Forecasting Model for Hiring and Investment
I cast the estimated model of hiring and investment into this assetpricing framework by defining P and D for the optimalinvestment equation and for the optimal hiring equation.
The “price” P is the value of investment or the value of hiring;The “dividend” D is the flow of net income from capital or fromlabor.Additional terms come into play here.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 41 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Implementing the Forecasting Model for Hiring and Investment
I cast the estimated model of hiring and investment into this assetpricing framework by defining P and D for the optimalinvestment equation and for the optimal hiring equation.The “price” P is the value of investment or the value of hiring;
The “dividend” D is the flow of net income from capital or fromlabor.Additional terms come into play here.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 41 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Implementing the Forecasting Model for Hiring and Investment
I cast the estimated model of hiring and investment into this assetpricing framework by defining P and D for the optimalinvestment equation and for the optimal hiring equation.The “price” P is the value of investment or the value of hiring;The “dividend” D is the flow of net income from capital or fromlabor.
Additional terms come into play here.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 41 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Implementing the Forecasting Model for Hiring and Investment
I cast the estimated model of hiring and investment into this assetpricing framework by defining P and D for the optimalinvestment equation and for the optimal hiring equation.The “price” P is the value of investment or the value of hiring;The “dividend” D is the flow of net income from capital or fromlabor.Additional terms come into play here.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 41 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
P1t � (1� τt)
git + pI
tftkt
!=
QKt
ftkt
(16)
D1t � (1� τt)
( fkt � gkt)ftkt
(17)
R1t �
G f /kt+1
�(1� δt)P1
t + D1t�
P1t�1
(18)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 42 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
P2t � (1� τt) ght
ftnt
� QNt
ftnt
(19)
D2t � (1� τt)
α� gnt
ftnt
� wtftnt
!(20)
R2t �
G f /nt+1
�(1� ψt)P
2t + D2
t�
P2t�1
(21)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 43 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Run a restricted VAR
(xt+1) = A+ Bxt + εt (22)
For capital
xt+1 =
0BBBBB@p1
t+1d1
t+1r1
t+1
ln�
G f /kt+1
�ln(1� δt+1)
1CCCCCAWith structural steady state restrictions:
e1(I � ρkB) =�(1� ρk)e2 � e3 + e4 + ρke5
�B (23)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 44 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
What do we learn about the various future determinants ofinvestment and hiring values?
First, returns have the dominant role, as also found in theempirical Finance literature.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 45 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
What do we learn about the various future determinants ofinvestment and hiring values?First, returns have the dominant role, as also found in theempirical Finance literature.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 45 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
The coefficients are negative, implying that a rise in log prices isassociated with future declines in returns (r), for both investmentand hiring,
i.e., high prices predict low subsequent returns, as found in theFinance literature.A similar result is obtained when computing the relation betweenthe log price-dividend ratio (p� d) of investment and of hiringwith their subsequent returns.This result has been observed for stock prices and dividends andfor house prices and rents (see Cochrane (JF 2011)).
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 46 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
The coefficients are negative, implying that a rise in log prices isassociated with future declines in returns (r), for both investmentand hiring,i.e., high prices predict low subsequent returns, as found in theFinance literature.
A similar result is obtained when computing the relation betweenthe log price-dividend ratio (p� d) of investment and of hiringwith their subsequent returns.This result has been observed for stock prices and dividends andfor house prices and rents (see Cochrane (JF 2011)).
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 46 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
The coefficients are negative, implying that a rise in log prices isassociated with future declines in returns (r), for both investmentand hiring,i.e., high prices predict low subsequent returns, as found in theFinance literature.A similar result is obtained when computing the relation betweenthe log price-dividend ratio (p� d) of investment and of hiringwith their subsequent returns.
This result has been observed for stock prices and dividends andfor house prices and rents (see Cochrane (JF 2011)).
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 46 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
The coefficients are negative, implying that a rise in log prices isassociated with future declines in returns (r), for both investmentand hiring,i.e., high prices predict low subsequent returns, as found in theFinance literature.A similar result is obtained when computing the relation betweenthe log price-dividend ratio (p� d) of investment and of hiringwith their subsequent returns.This result has been observed for stock prices and dividends andfor house prices and rents (see Cochrane (JF 2011)).
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 46 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Second, dividends play a role in the hiring case, although smallerthan returns.
In this case, higher prices are associated with subsequent higherdividends and the adjusted R2 is very high (0.95).The analysis indicates that if wages do not move closely withlabor productivity there is a meaningful effect to productivitychanges, in line with the Shimer (AER 2005) findings.Third, productivity growth, does not appear to play a role in bothcases: the VAR coefficients are not significantly different from zeroand the long run coefficients are small.This is akin to the finding in Finance that dividend growth doesnot matter much.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 47 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Second, dividends play a role in the hiring case, although smallerthan returns.In this case, higher prices are associated with subsequent higherdividends and the adjusted R2 is very high (0.95).
The analysis indicates that if wages do not move closely withlabor productivity there is a meaningful effect to productivitychanges, in line with the Shimer (AER 2005) findings.Third, productivity growth, does not appear to play a role in bothcases: the VAR coefficients are not significantly different from zeroand the long run coefficients are small.This is akin to the finding in Finance that dividend growth doesnot matter much.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 47 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Second, dividends play a role in the hiring case, although smallerthan returns.In this case, higher prices are associated with subsequent higherdividends and the adjusted R2 is very high (0.95).The analysis indicates that if wages do not move closely withlabor productivity there is a meaningful effect to productivitychanges, in line with the Shimer (AER 2005) findings.
Third, productivity growth, does not appear to play a role in bothcases: the VAR coefficients are not significantly different from zeroand the long run coefficients are small.This is akin to the finding in Finance that dividend growth doesnot matter much.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 47 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Second, dividends play a role in the hiring case, although smallerthan returns.In this case, higher prices are associated with subsequent higherdividends and the adjusted R2 is very high (0.95).The analysis indicates that if wages do not move closely withlabor productivity there is a meaningful effect to productivitychanges, in line with the Shimer (AER 2005) findings.Third, productivity growth, does not appear to play a role in bothcases: the VAR coefficients are not significantly different from zeroand the long run coefficients are small.
This is akin to the finding in Finance that dividend growth doesnot matter much.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 47 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Second, dividends play a role in the hiring case, although smallerthan returns.In this case, higher prices are associated with subsequent higherdividends and the adjusted R2 is very high (0.95).The analysis indicates that if wages do not move closely withlabor productivity there is a meaningful effect to productivitychanges, in line with the Shimer (AER 2005) findings.Third, productivity growth, does not appear to play a role in bothcases: the VAR coefficients are not significantly different from zeroand the long run coefficients are small.This is akin to the finding in Finance that dividend growth doesnot matter much.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 47 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Fourth, prices – the values of investment and hiring – arepersistent
which is consistent with the persistence of investment and hiringrates themselves.Fifth, the rates of separation and depreciation do not appear to play ameaningful role.This means that the variable that determines the length of the hiredoes not have much effect on the value of the hire, relative to theother determinants.It is the discounting of future streams which plays theoverwhelming role.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 48 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Fourth, prices – the values of investment and hiring – arepersistentwhich is consistent with the persistence of investment and hiringrates themselves.
Fifth, the rates of separation and depreciation do not appear to play ameaningful role.This means that the variable that determines the length of the hiredoes not have much effect on the value of the hire, relative to theother determinants.It is the discounting of future streams which plays theoverwhelming role.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 48 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Fourth, prices – the values of investment and hiring – arepersistentwhich is consistent with the persistence of investment and hiringrates themselves.Fifth, the rates of separation and depreciation do not appear to play ameaningful role.
This means that the variable that determines the length of the hiredoes not have much effect on the value of the hire, relative to theother determinants.It is the discounting of future streams which plays theoverwhelming role.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 48 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Fourth, prices – the values of investment and hiring – arepersistentwhich is consistent with the persistence of investment and hiringrates themselves.Fifth, the rates of separation and depreciation do not appear to play ameaningful role.This means that the variable that determines the length of the hiredoes not have much effect on the value of the hire, relative to theother determinants.
It is the discounting of future streams which plays theoverwhelming role.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 48 / 71
RESULTS FUTURE DETERMINANTS OF JOB AND CAPITAL VALUES
Fourth, prices – the values of investment and hiring – arepersistentwhich is consistent with the persistence of investment and hiringrates themselves.Fifth, the rates of separation and depreciation do not appear to play ameaningful role.This means that the variable that determines the length of the hiredoes not have much effect on the value of the hire, relative to theother determinants.It is the discounting of future streams which plays theoverwhelming role.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 48 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
U.S. LABOR MARKET EXPERIENCE
Matching Model
ht
nt= µt
�ut
nt
�σ � vt
nt
�1�σ
(24)
qt =ht
vt= µt
�vt
ut
��σ
g(�) =
2664e1η1( it
kt)η1
+ e2η2(λ vt
nt+ (1� λ) qtvt
nt)η2
+ e3η3
�itkt
qtvtnt
�η3
3775 f (zt, nt, kt). (25)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 49 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
The steady state:
(1� τ)
pI
fk
+gi(
qvn , i
k )fk
!=
QK
fk
(26)
(1� τ)gv(
vn , q, i
k )fn
=QN
fn
(27)
µ�u
n
�σ � vn
�1�σ= ψ+ g (28)
where g is the rate of growth of the labor force (n+ u).
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 50 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Steady state equilibrium can be presented as a plot in un and v
nspace:
Vacancy creation and st. st. flows curves
26666664e2(λ
vn + (1� λ)
�µ( v
n )1�σ( u
n )σ
vn
�vn )�
λ+ (1� λ)
�µ( v
n )1�σ( u
n )σ
vn
��+e3
� ik
� � µ( vn )
1�σ( u
n )σ
vn
�
37777775 =QN
fn
11� τ
(29)
µ� v
n
�1�σ �un
�σ= ψ+ g (30)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 51 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Steady state equilibrium can be presented as a plot in un and v
nspace:Vacancy creation and st. st. flows curves
26666664e2(λ
vn + (1� λ)
�µ( v
n )1�σ( u
n )σ
vn
�vn )�
λ+ (1� λ)
�µ( v
n )1�σ( u
n )σ
vn
��+e3
� ik
� � µ( vn )
1�σ( u
n )σ
vn
�
37777775 =QN
fn
11� τ
(29)
µ� v
n
�1�σ �un
�σ= ψ+ g (30)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 51 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Steady state equilibrium can be presented as a plot in un and v
nspace:Vacancy creation and st. st. flows curves
26666664e2(λ
vn + (1� λ)
�µ( v
n )1�σ( u
n )σ
vn
�vn )�
λ+ (1� λ)
�µ( v
n )1�σ( u
n )σ
vn
��+e3
� ik
� � µ( vn )
1�σ( u
n )σ
vn
�
37777775 =QN
fn
11� τ
(29)
µ� v
n
�1�σ �un
�σ= ψ+ g (30)
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 51 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
red–vacancy creation
purple-steady state flows
0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.100.02
0.03
0.04
0.05
u/n
v/n
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 52 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
red–vacancy creationpurple-steady state flows
0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.100.02
0.03
0.04
0.05
u/n
v/n
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 52 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
red–vacancy creationpurple-steady state flows
0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.100.02
0.03
0.04
0.05
u/n
v/n
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 52 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Vacancy creation curve:
gv(vn , q, i
k )fn
=QN
fn (1� τ)
slopes down as higher un means higher q so less need for v to
attain hmoves upwards ( v
n rises) as job value 1(1�τ)
QN
fn
rises
for calibrated values, moves upwards as ik falls, partly because
∂gv∂i/k = e3
� ik
�q < 0
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 53 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Vacancy creation curve:
gv(vn , q, i
k )fn
=QN
fn (1� τ)
slopes down as higher un means higher q so less need for v to
attain hmoves upwards ( v
n rises) as job value 1(1�τ)
QN
fn
rises
for calibrated values, moves upwards as ik falls, partly because
∂gv∂i/k = e3
� ik
�q < 0
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 53 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Vacancy creation curve:
gv(vn , q, i
k )fn
=QN
fn (1� τ)
slopes down as higher un means higher q so less need for v to
attain h
moves upwards ( vn rises) as job value 1
(1�τ)QN
fn
rises
for calibrated values, moves upwards as ik falls, partly because
∂gv∂i/k = e3
� ik
�q < 0
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 53 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Vacancy creation curve:
gv(vn , q, i
k )fn
=QN
fn (1� τ)
slopes down as higher un means higher q so less need for v to
attain hmoves upwards ( v
n rises) as job value 1(1�τ)
QN
fn
rises
for calibrated values, moves upwards as ik falls, partly because
∂gv∂i/k = e3
� ik
�q < 0
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 53 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Vacancy creation curve:
gv(vn , q, i
k )fn
=QN
fn (1� τ)
slopes down as higher un means higher q so less need for v to
attain hmoves upwards ( v
n rises) as job value 1(1�τ)
QN
fn
rises
for calibrated values, moves upwards as ik falls, partly because
∂gv∂i/k = e3
� ik
�q < 0
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 53 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Relating the Matching Model to U.S. Data
Going to the data the idea is to relate the steady state relationshipsto actual data.
The aim is to find a region in un �
vn space where these equations
seem to be a reasonable approximation of the steady state aroundwhich the data points are scattered.Hence this is a “stylized exercise” that needs to be understood assuch.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 54 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Relating the Matching Model to U.S. Data
Going to the data the idea is to relate the steady state relationshipsto actual data.The aim is to find a region in u
n �vn space where these equations
seem to be a reasonable approximation of the steady state aroundwhich the data points are scattered.
Hence this is a “stylized exercise” that needs to be understood assuch.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 54 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Relating the Matching Model to U.S. Data
Going to the data the idea is to relate the steady state relationshipsto actual data.The aim is to find a region in u
n �vn space where these equations
seem to be a reasonable approximation of the steady state aroundwhich the data points are scattered.Hence this is a “stylized exercise” that needs to be understood assuch.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 54 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
0.04 0.05 0.06 0.07 0.08 0.09 0.1 0.11 0.12 0.130
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.1
U
u//n
v//n
vu1 7691
vu2 7691
vu1 9206,
vu2 9206
vu1 0711
vu2 0711
u = official unemploymentERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 55 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
The following interpretation of U.S. labor market developments, apartial equilibrium “story”:
Going from the 1976-1991 sub-period to the 1992/4-2006sub-period, both curves shift down.
For the vacancy creation curve: 11�τ
QN
fn#, i
k " .
For the steady state flows curve: ψ, g # .Equilibrium unemployment and vacancy rates decline, as dohiring and separation rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 56 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
The following interpretation of U.S. labor market developments, apartial equilibrium “story”:Going from the 1976-1991 sub-period to the 1992/4-2006sub-period, both curves shift down.
For the vacancy creation curve: 11�τ
QN
fn#, i
k " .
For the steady state flows curve: ψ, g # .Equilibrium unemployment and vacancy rates decline, as dohiring and separation rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 56 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
The following interpretation of U.S. labor market developments, apartial equilibrium “story”:Going from the 1976-1991 sub-period to the 1992/4-2006sub-period, both curves shift down.
For the vacancy creation curve: 11�τ
QN
fn#, i
k " .
For the steady state flows curve: ψ, g # .Equilibrium unemployment and vacancy rates decline, as dohiring and separation rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 56 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
The following interpretation of U.S. labor market developments, apartial equilibrium “story”:Going from the 1976-1991 sub-period to the 1992/4-2006sub-period, both curves shift down.
For the vacancy creation curve: 11�τ
QN
fn#, i
k " .
For the steady state flows curve: ψ, g # .
Equilibrium unemployment and vacancy rates decline, as dohiring and separation rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 56 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
The following interpretation of U.S. labor market developments, apartial equilibrium “story”:Going from the 1976-1991 sub-period to the 1992/4-2006sub-period, both curves shift down.
For the vacancy creation curve: 11�τ
QN
fn#, i
k " .
For the steady state flows curve: ψ, g # .Equilibrium unemployment and vacancy rates decline, as dohiring and separation rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 56 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
0.04 0.05 0.06 0.07 0.08 0.09 0.1 0.11 0.12 0.130
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.1
U
u//n
v//n
vu1 7691
vu2 7691
vu1 9206,
vu2 9206
vu1 0711
vu2 0711
u = official unemploymentERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 57 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Going from 1992/4-2006 to 2007- 2011 both curves shift up.
For vacancy creation curve: 11�τ
QN
fn", i
k # .
For the steady state flows curve: ψ ", despite g #Equilibrium unemployment rises (as do hiring and separationrates) while vacancy rates fall.The intuition is clear: the higher the job value, the higher isvacancy creation, and the curve for the latter moves up.The less intuitive aspect is the rise in job values in recession,discussed earlier.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 58 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Going from 1992/4-2006 to 2007- 2011 both curves shift up.
For vacancy creation curve: 11�τ
QN
fn", i
k # .
For the steady state flows curve: ψ ", despite g #Equilibrium unemployment rises (as do hiring and separationrates) while vacancy rates fall.The intuition is clear: the higher the job value, the higher isvacancy creation, and the curve for the latter moves up.The less intuitive aspect is the rise in job values in recession,discussed earlier.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 58 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Going from 1992/4-2006 to 2007- 2011 both curves shift up.
For vacancy creation curve: 11�τ
QN
fn", i
k # .
For the steady state flows curve: ψ ", despite g #
Equilibrium unemployment rises (as do hiring and separationrates) while vacancy rates fall.The intuition is clear: the higher the job value, the higher isvacancy creation, and the curve for the latter moves up.The less intuitive aspect is the rise in job values in recession,discussed earlier.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 58 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Going from 1992/4-2006 to 2007- 2011 both curves shift up.
For vacancy creation curve: 11�τ
QN
fn", i
k # .
For the steady state flows curve: ψ ", despite g #Equilibrium unemployment rises (as do hiring and separationrates) while vacancy rates fall.
The intuition is clear: the higher the job value, the higher isvacancy creation, and the curve for the latter moves up.The less intuitive aspect is the rise in job values in recession,discussed earlier.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 58 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Going from 1992/4-2006 to 2007- 2011 both curves shift up.
For vacancy creation curve: 11�τ
QN
fn", i
k # .
For the steady state flows curve: ψ ", despite g #Equilibrium unemployment rises (as do hiring and separationrates) while vacancy rates fall.The intuition is clear: the higher the job value, the higher isvacancy creation, and the curve for the latter moves up.
The less intuitive aspect is the rise in job values in recession,discussed earlier.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 58 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Going from 1992/4-2006 to 2007- 2011 both curves shift up.
For vacancy creation curve: 11�τ
QN
fn", i
k # .
For the steady state flows curve: ψ ", despite g #Equilibrium unemployment rises (as do hiring and separationrates) while vacancy rates fall.The intuition is clear: the higher the job value, the higher isvacancy creation, and the curve for the latter moves up.The less intuitive aspect is the rise in job values in recession,discussed earlier.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 58 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Hence job values exhibited counter-cyclical behavior over thesample period, rising in recessions;
and they were dominant in the stylized explanation ofunemployment changesboth the fall, going into the 1990s and 2000s, and the subsequentrise in the Great Recession of 2007-2009.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 59 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Hence job values exhibited counter-cyclical behavior over thesample period, rising in recessions;and they were dominant in the stylized explanation ofunemployment changes
both the fall, going into the 1990s and 2000s, and the subsequentrise in the Great Recession of 2007-2009.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 59 / 71
RESULTS U.S. LABOR MARKET EXPERIENCE
Hence job values exhibited counter-cyclical behavior over thesample period, rising in recessions;and they were dominant in the stylized explanation ofunemployment changesboth the fall, going into the 1990s and 2000s, and the subsequentrise in the Great Recession of 2007-2009.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 59 / 71
CONCLUSIONS
CONCLUSIONS
The results indicate three sets of key implications:
One is the complementarity between hiring and investment.The hiring rate is heavily influenced by the present value ofinvestment,while the rate of investment is less influenced by the present valueof hiring.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 60 / 71
CONCLUSIONS
CONCLUSIONS
The results indicate three sets of key implications:One is the complementarity between hiring and investment.
The hiring rate is heavily influenced by the present value ofinvestment,while the rate of investment is less influenced by the present valueof hiring.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 60 / 71
CONCLUSIONS
CONCLUSIONS
The results indicate three sets of key implications:One is the complementarity between hiring and investment.The hiring rate is heavily influenced by the present value ofinvestment,
while the rate of investment is less influenced by the present valueof hiring.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 60 / 71
CONCLUSIONS
CONCLUSIONS
The results indicate three sets of key implications:One is the complementarity between hiring and investment.The hiring rate is heavily influenced by the present value ofinvestment,while the rate of investment is less influenced by the present valueof hiring.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 60 / 71
CONCLUSIONS
A second is that in the sample period, U.S. investment rates andtheir present value (value of capital) are pro-cyclical
while hiring and job values are counter-cyclical.Estimated job values here were shown to differ from thosederived from the standard search and matching model.The main determinant of these capital values and job values arefuture returns, in line with what has been found in the Financeliterature for asset prices.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 61 / 71
CONCLUSIONS
A second is that in the sample period, U.S. investment rates andtheir present value (value of capital) are pro-cyclicalwhile hiring and job values are counter-cyclical.
Estimated job values here were shown to differ from thosederived from the standard search and matching model.The main determinant of these capital values and job values arefuture returns, in line with what has been found in the Financeliterature for asset prices.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 61 / 71
CONCLUSIONS
A second is that in the sample period, U.S. investment rates andtheir present value (value of capital) are pro-cyclicalwhile hiring and job values are counter-cyclical.Estimated job values here were shown to differ from thosederived from the standard search and matching model.
The main determinant of these capital values and job values arefuture returns, in line with what has been found in the Financeliterature for asset prices.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 61 / 71
CONCLUSIONS
A second is that in the sample period, U.S. investment rates andtheir present value (value of capital) are pro-cyclicalwhile hiring and job values are counter-cyclical.Estimated job values here were shown to differ from thosederived from the standard search and matching model.The main determinant of these capital values and job values arefuture returns, in line with what has been found in the Financeliterature for asset prices.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 61 / 71
CONCLUSIONS
The third is that U.S. labor market experience, including the GreatRecession, can be depicted in a stylized way using the estimatedmodel.
Going from the 1970s and 1980s to the 1990s and 2000s, job valuesdeclined as did labor force growth rates.Hence there ensued a decline in vacancy and hiring rates, and,concurrently, in unemployment rates.Moving from the last period to the Great Recession, job valueswent up while labor force growth rates continued to decline,leading to a rise in unemployment and a decline in vacancy rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 62 / 71
CONCLUSIONS
The third is that U.S. labor market experience, including the GreatRecession, can be depicted in a stylized way using the estimatedmodel.Going from the 1970s and 1980s to the 1990s and 2000s, job valuesdeclined as did labor force growth rates.
Hence there ensued a decline in vacancy and hiring rates, and,concurrently, in unemployment rates.Moving from the last period to the Great Recession, job valueswent up while labor force growth rates continued to decline,leading to a rise in unemployment and a decline in vacancy rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 62 / 71
CONCLUSIONS
The third is that U.S. labor market experience, including the GreatRecession, can be depicted in a stylized way using the estimatedmodel.Going from the 1970s and 1980s to the 1990s and 2000s, job valuesdeclined as did labor force growth rates.Hence there ensued a decline in vacancy and hiring rates, and,concurrently, in unemployment rates.
Moving from the last period to the Great Recession, job valueswent up while labor force growth rates continued to decline,leading to a rise in unemployment and a decline in vacancy rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 62 / 71
CONCLUSIONS
The third is that U.S. labor market experience, including the GreatRecession, can be depicted in a stylized way using the estimatedmodel.Going from the 1970s and 1980s to the 1990s and 2000s, job valuesdeclined as did labor force growth rates.Hence there ensued a decline in vacancy and hiring rates, and,concurrently, in unemployment rates.Moving from the last period to the Great Recession, job valueswent up while labor force growth rates continued to decline,
leading to a rise in unemployment and a decline in vacancy rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 62 / 71
CONCLUSIONS
The third is that U.S. labor market experience, including the GreatRecession, can be depicted in a stylized way using the estimatedmodel.Going from the 1970s and 1980s to the 1990s and 2000s, job valuesdeclined as did labor force growth rates.Hence there ensued a decline in vacancy and hiring rates, and,concurrently, in unemployment rates.Moving from the last period to the Great Recession, job valueswent up while labor force growth rates continued to decline,leading to a rise in unemployment and a decline in vacancy rates.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 62 / 71
CONCLUSIONS
This paper, intentionally, did not specify a full DSGE model.
This was done in order to focus on firms’ investment and hiringdecisionsand not let the analysis be affected by possible mis-specificationsor problematics in other parts of the macroeconomy.To account for firm investment and hiring behavior, one does notneed to get into issues such as optimal intertemporalconsumption and labor choices of the individual.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 63 / 71
CONCLUSIONS
This paper, intentionally, did not specify a full DSGE model.This was done in order to focus on firms’ investment and hiringdecisions
and not let the analysis be affected by possible mis-specificationsor problematics in other parts of the macroeconomy.To account for firm investment and hiring behavior, one does notneed to get into issues such as optimal intertemporalconsumption and labor choices of the individual.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 63 / 71
CONCLUSIONS
This paper, intentionally, did not specify a full DSGE model.This was done in order to focus on firms’ investment and hiringdecisionsand not let the analysis be affected by possible mis-specificationsor problematics in other parts of the macroeconomy.
To account for firm investment and hiring behavior, one does notneed to get into issues such as optimal intertemporalconsumption and labor choices of the individual.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 63 / 71
CONCLUSIONS
This paper, intentionally, did not specify a full DSGE model.This was done in order to focus on firms’ investment and hiringdecisionsand not let the analysis be affected by possible mis-specificationsor problematics in other parts of the macroeconomy.To account for firm investment and hiring behavior, one does notneed to get into issues such as optimal intertemporalconsumption and labor choices of the individual.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 63 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
DETOUR ON HIRING FLOWS IN U.S. DATA
Two data sources: CPS and JOLTS (since end of 2000)
Three hiring flows: U to N, O to N, N to NI use: CPS, U to N and O to N, as I am concerned with changes inaggregate NCPS and JOLTS are very different
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 64 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
DETOUR ON HIRING FLOWS IN U.S. DATA
Two data sources: CPS and JOLTS (since end of 2000)Three hiring flows: U to N, O to N, N to N
I use: CPS, U to N and O to N, as I am concerned with changes inaggregate NCPS and JOLTS are very different
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 64 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
DETOUR ON HIRING FLOWS IN U.S. DATA
Two data sources: CPS and JOLTS (since end of 2000)Three hiring flows: U to N, O to N, N to NI use: CPS, U to N and O to N, as I am concerned with changes inaggregate N
CPS and JOLTS are very different
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 64 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
DETOUR ON HIRING FLOWS IN U.S. DATA
Two data sources: CPS and JOLTS (since end of 2000)Three hiring flows: U to N, O to N, N to NI use: CPS, U to N and O to N, as I am concerned with changes inaggregate NCPS and JOLTS are very different
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 64 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
Total Hiring Flows (NSA, 000s)Sample: 2000 : 12� 2013 : 08
CPS JOLTSMean 8373.6 4699.8Median 8211.3 4749.7Maximum 11007.8 5776.7Minimum 6508.7 3631.0Std. Dev. 916.1 522.3Skewness 0.39 �0.18Kurtosis 2.73 1.89
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 65 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
The following emerges:
The CPS mean is 1.78 higher, the CPS median is 1.73 higherThe c.o.v of CPS is 0.109, very close to c.o.v for JOLTS at 0.111The correlation is 0.43The third and fourth moments are very different
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 66 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
For TOTAL flows – U to N + O to N + N to NLogged, HP filtered
.6
.4
.2
.0
.2
.4
.6
.8
01 02 03 04 05 06 07 08 09 10 11 12 13
JOLTS CPS
hn ,SA, including job to job flowsERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 67 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
For CPS flows used here – U to N + O to N
.08
.06
.04
.02
.00
.02
.04
.06
.08
.10
1980 1985 1990 1995 2000 2005 2010
h/n
ln hn ,HP-filtered, CPS, no job to job
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 68 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
Faberman, Mosacrini:
JOLTS has the same scope as the CES and relates to jobs; CPS is adifferent survey and relates to workers.Thus CES/JOLTS count multiple jobs held by the same person asseparate hiresClassification error make the CPS estimates higher than what islikely the truth.The JOLTS survey and stratification causes it to undercount youngand/or volatile establishments and understate the true workerflow rates.JOLTS does not include the self-employed.
hiring definitions
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 69 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
Faberman, Mosacrini:JOLTS has the same scope as the CES and relates to jobs; CPS is adifferent survey and relates to workers.
Thus CES/JOLTS count multiple jobs held by the same person asseparate hiresClassification error make the CPS estimates higher than what islikely the truth.The JOLTS survey and stratification causes it to undercount youngand/or volatile establishments and understate the true workerflow rates.JOLTS does not include the self-employed.
hiring definitions
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 69 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
Faberman, Mosacrini:JOLTS has the same scope as the CES and relates to jobs; CPS is adifferent survey and relates to workers.Thus CES/JOLTS count multiple jobs held by the same person asseparate hires
Classification error make the CPS estimates higher than what islikely the truth.The JOLTS survey and stratification causes it to undercount youngand/or volatile establishments and understate the true workerflow rates.JOLTS does not include the self-employed.
hiring definitions
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 69 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
Faberman, Mosacrini:JOLTS has the same scope as the CES and relates to jobs; CPS is adifferent survey and relates to workers.Thus CES/JOLTS count multiple jobs held by the same person asseparate hiresClassification error make the CPS estimates higher than what islikely the truth.
The JOLTS survey and stratification causes it to undercount youngand/or volatile establishments and understate the true workerflow rates.JOLTS does not include the self-employed.
hiring definitions
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 69 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
Faberman, Mosacrini:JOLTS has the same scope as the CES and relates to jobs; CPS is adifferent survey and relates to workers.Thus CES/JOLTS count multiple jobs held by the same person asseparate hiresClassification error make the CPS estimates higher than what islikely the truth.The JOLTS survey and stratification causes it to undercount youngand/or volatile establishments and understate the true workerflow rates.
JOLTS does not include the self-employed.hiring definitions
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 69 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
Faberman, Mosacrini:JOLTS has the same scope as the CES and relates to jobs; CPS is adifferent survey and relates to workers.Thus CES/JOLTS count multiple jobs held by the same person asseparate hiresClassification error make the CPS estimates higher than what islikely the truth.The JOLTS survey and stratification causes it to undercount youngand/or volatile establishments and understate the true workerflow rates.JOLTS does not include the self-employed.
hiring definitions
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 69 / 71
DETOUR ON HIRING FLOWS IN U.S. DATA
Faberman, Mosacrini:JOLTS has the same scope as the CES and relates to jobs; CPS is adifferent survey and relates to workers.Thus CES/JOLTS count multiple jobs held by the same person asseparate hiresClassification error make the CPS estimates higher than what islikely the truth.The JOLTS survey and stratification causes it to undercount youngand/or volatile establishments and understate the true workerflow rates.JOLTS does not include the self-employed.
hiring definitions
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 69 / 71
DATA
DATA
The discount rate and the discount factor
The discount rate is based on a DSGE-type model withlogarithmic utility U(ct) = ln ct.
U0(ct) = U0(ct+1) � (1+ rt)
Hence:
ρt =ct
ct+1
where c is non-durable consumption (goods and services) and 5%of durable consumption.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 70 / 71
DATA
DATA
The discount rate and the discount factorThe discount rate is based on a DSGE-type model withlogarithmic utility U(ct) = ln ct.
U0(ct) = U0(ct+1) � (1+ rt)
Hence:
ρt =ct
ct+1
where c is non-durable consumption (goods and services) and 5%of durable consumption.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 70 / 71
DATA
DATA
The discount rate and the discount factorThe discount rate is based on a DSGE-type model withlogarithmic utility U(ct) = ln ct.
U0(ct) = U0(ct+1) � (1+ rt)
Hence:
ρt =ct
ct+1
where c is non-durable consumption (goods and services) and 5%of durable consumption.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 70 / 71
DATA
DATA
The discount rate and the discount factorThe discount rate is based on a DSGE-type model withlogarithmic utility U(ct) = ln ct.
U0(ct) = U0(ct+1) � (1+ rt)
Hence:
ρt =ct
ct+1
where c is non-durable consumption (goods and services) and 5%of durable consumption.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 70 / 71
DATA
DATA
The discount rate and the discount factorThe discount rate is based on a DSGE-type model withlogarithmic utility U(ct) = ln ct.
U0(ct) = U0(ct+1) � (1+ rt)
Hence:
ρt =ct
ct+1
where c is non-durable consumption (goods and services) and 5%of durable consumption.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 70 / 71
DATA
DATA
The discount rate and the discount factorThe discount rate is based on a DSGE-type model withlogarithmic utility U(ct) = ln ct.
U0(ct) = U0(ct+1) � (1+ rt)
Hence:
ρt =ct
ct+1
where c is non-durable consumption (goods and services) and 5%of durable consumption.
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 70 / 71
DATA
Investment, capital and depreciation
based on net stock of private nonresidential fixed assets in NFCBsector,
NIPA and flow of fundsUse of investment tax credit on equipment and public utilitystructures, the present discounted value of capital depreciationallowances, and the percentage of the cost of equipment thatcannot be depreciated if the firm takes the investment tax credit.
data
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 71 / 71
DATA
Investment, capital and depreciation
based on net stock of private nonresidential fixed assets in NFCBsector,NIPA and flow of funds
Use of investment tax credit on equipment and public utilitystructures, the present discounted value of capital depreciationallowances, and the percentage of the cost of equipment thatcannot be depreciated if the firm takes the investment tax credit.
data
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 71 / 71
DATA
Investment, capital and depreciation
based on net stock of private nonresidential fixed assets in NFCBsector,NIPA and flow of fundsUse of investment tax credit on equipment and public utilitystructures, the present discounted value of capital depreciationallowances, and the percentage of the cost of equipment thatcannot be depreciated if the firm takes the investment tax credit.
data
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 71 / 71
DATA
Investment, capital and depreciation
based on net stock of private nonresidential fixed assets in NFCBsector,NIPA and flow of fundsUse of investment tax credit on equipment and public utilitystructures, the present discounted value of capital depreciationallowances, and the percentage of the cost of equipment thatcannot be depreciated if the firm takes the investment tax credit.
data
ERAN YASHIV (TEL AVIV) HIRING AND INVESTMENT JUNE 2014 71 / 71
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