Labor matching: putting the pieces together

By: Anton Cheremukhin

http://d.repec.org/n?u=RePEc:fip:feddwp:1102&r=dge

The original Mortensen-Pissarides model possesses two elements that are absent from the commonly used simplified version: the job destruction margin and training costs. I find that these two elements enable a model driven by a single aggregate shock to simultaneously explain most movements involving unemployment, vacancies, job destruction, job creation, the job finding rate and wages. The job destruction margin’s role in propagating aggregate shocks is to create an additional pool of unemployed at the onset of a recession. The role of training costs is to explain the simultaneous decline in vacancies and slow response of job creation.

Applications of the Mortensen-Pissarides matching model do not use endogenous job destruction because there is little evidence it varies over the cycle and it would involve countercyclical vacancies. This paper shows that these disadvantages can be fixed once training and hiring costs are included, and they provide interesting dynamics.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: