The authors develop a measure of labor market uncertainty at the aggregate level. They build a search and matching model with factor stochastic volatility, where the common component of the conditional volatilities is defined as labor market uncertainty. Using rich administrative data from Germany, they show that labor market uncertainty is countercyclical and captures salient historical narratives in the German labor market. Including the measure in a VAR, the authors find that labor market uncertainty shocks persistently increase unemployment and primarily operate through the hiring margin.
IAB-Discussion Paper 8/2026: Measuring Labor Market Uncertainty
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