The Timing of Labor Market Expansions: New Facts and a New Hypothesis

In this article we argue that the same poaching mechanism also transmits aggregate productivity shocks to wages and employment. Firms offer higher wages only when they run out of cheap unemployed job applicants and find it profitable to steal employees from their competitors, who in turn fight back and start paying more to retain their workers. Our argument builds on a set of new facts about aggregate dynamics in U.S. labor markets over the last two decades that we document by drawing in part from newly available data sets. These facts suggest a new view of how business cycles evolve and mature. We investigate whether this view is consistent with the transitional dynamics of the Burdett‐Mortensen equilibrium search model. In Moscarini and Postel‐Vinay (2008), we develop the first theoretical analysis of the out‐of‐steady‐state behavior of the Burdett‐Mortensen model.1 In the present paper, we build on those results and present a quantitative simulation exercise to gauge the extent to which the Burdett‐Mortensen model’s quantitative predictions are congruent with the facts that we uncover.