Abstract

This paper studies how workers’ exits from employment into nonparticipation affect aggregate labor market dynamics. When a worker leaves the labor force while her position remains productive, the employer may repost it, generating a vacancy without creating a new job—a mechanism I call vacating. In a matching model with sluggish entry, procyclical vacating amplifies fluctuations in vacancies, job finding, and unemployment, even when the opportunity cost of employment is small and procyclical. Moreover, because the setup costs of reposted positions are already sunk, reposting is less sensitive to interest rates than creating new jobs. Vacating therefore dampens the labor market responses to changes in the interest rate.