Do Matching Frictions Explain Unemployment? Not in Bad Times
- (pp. 1721-50)
AbstractThis paper proposes a search-and-matching model of unemployment in which jobs are rationed: the labor market does not clear in the absence of matching frictions. This job shortage arises in an economic equilibrium from the combination of some wage rigidity and diminishing marginal returns to labor. In recessions, job rationing is acute, driving the rise in unemployment, whereas matching frictions contribute little to unemployment. Intuitively in recessions, jobs are lacking, the labor market is slack, and recruiting is easy and inexpensive, so matching frictions do not matter much. In a calibrated model, cyclical fluctuations in the composition of unemployment are large.
Citation2012. "Do Matching Frictions Explain Unemployment? Not in Bad Times." American Economic Review, 102(4): 1721-50. DOI: 10.1257/aer.102.4.1721
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
- E32 Business Fluctuations; Cycles
- J41 Labor Contracts
- J64 Unemployment: Models, Duration, Incidence, and Job Search