LABOR-MARKET FLOWS OVER THE BUSINESS-CYCLE - AN ASYMMETRIC HIRING COST EXPLANATION

In recessions, both the flow from employment to unemployment as well a s the reverse flow from unemployment to employment increase, which is in strong contrast to the conventional view of the business cycle. Thi s paper argues that these asymmetries in flows are to be explained by a shift away from hiring of employed workers to hiring of unemployed w orkers driven by an asymmetrical development of hiring costs. This exp lanation competes with real business cycle explanations. Flow analysis shows that it is mainly the substitution of hiring from employment th rough hiring from unemployment which accounts for the observed asymmet ries.