type="main" xml:lang="en" <p>Over the business cycle, labor's share of output is negatively but weakly correlated with output, and it lags output by about four quarters. Profits' share is strongly pro-cyclical. It neither leads nor lags output, and its volatility is about five times that of output....</p>

We study the cyclical dynamics of the value of a vacant position in labor markets characterized by search and matching frictions. We present a model of aggregate fluctuations in which firms face sunk costs to enter the production process. Our specification of sunk costs gives rise to a...