Job destruction rate amplifies economic shocks, leading to prolonged downturns.
Aggregate shocks in the economy can have a big impact on job destruction and output. When job destruction rates go up during economic downturns, the effects of shocks on output become stronger and last longer. The way businesses adjust their capital and destroy jobs also affects how shocks spread through the economy. Studies show that these effects are significant when looking at real job data. Additionally, when businesses have to spend more to adjust their capital, the impact of shocks becomes even greater.