NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Mark W. Plant

International Monetary Fund

NBER Working Papers and Publications

February 1985Unemployment-Rate Dynamics and Persistent Unemployment Under Rational Expectations
with Michael R. Darby, John C. Haltiwanger: w1558
This paper develops a model of unemployment rate dynamics that provides an explanation of persistent cyclical unemployment that does not involve persistent expectational errors or other nonoptimizing behavior. Our results are based on the interaction of search dynamics and inventory adjustments. An important element in these dynamics appears to be heterogeneity in the labor force which can be characterized as consisting of a relatively small group of high turnover individuals who comprise the bulk of normal unemployment and a larger group of low turnover individuals who dominate movements in cyclical unemployment. Our empirical results provide support for this theory as we demonstrate that the appropriately measured probability of becoming employed during a recovery falls relative to norma...

Published: Darby, Michael R., John C. Haltiwanger and Mark W. Plan. "Unemployment-Rate Dynamics and Persistent Unemployment Under Rational Expectations." American Economic Review, Vol. 75, No. 4, (September 1985), pp. 614-637. citation courtesy of

 
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