Unemployment Dynamics

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9511916 Greenwood This project addresses the question: Why is there unemployment? The relationship between the adoption of new technologies and the abandonment of old ones, one the one hand, and creation of new jobs and the destruction of old ones, on the other, by constructing a model with vintage physical and human capital. The goal is to construct a model that can usefully organize the existing evidence on structural unemployment obtained from cross-national comparisons, as well as suggest further testable implications. This model is used to evaluate the effects of the policies that are frequently used to reduce the distributional effects of structural unemployment. Particular emphasis will be placed on discussing the effects on unemployment of social protection programs such as those implemented in European countries, and of new industrial policies aimed at encouraging investment in new technologies. The project also analyzes frictional unemployment in a business cycle setting. The analysis will be aimed at explaining the cyclical properties of labor market aggregates. The last model explores the dynamics of investment in a setting in which firms face a non-trivial financing decision between the use of internal and external funds. The model is consistent with the observation that firms tend to utilize external financing in large lumps at infrequent intervals. Additionally, the model can potentially explain the more intensive use of external finance by large, as compared to small, firms. This framework is used to study the relationship between intermediation on the one hand, and growth and business cycles on the other. ??