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Equilibrium matching and termination

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  • Wang, Cheng
  • Yang, Youzhi

Abstract

In an equilibrium model of the labor market with moral hazard, jobs are dynamic contracts, job separations are terminations of optimal dynamic contracts. Transitions from unemployment to new jobs are modeled as a process of random matching and Nash bargaining. Non-employed workers make consumption and saving decisions as in a standard growth model, as well as whether or not to participate in the labor market. The stationary equilibrium is characterized. The model is then calibrated to the U.S. labor market to study quantitatively the worker flows and distributions, the compensation dynamics, and the effects of UI system.

Suggested Citation

  • Wang, Cheng & Yang, Youzhi, 2015. "Equilibrium matching and termination," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 208-229.
    • Handle: RePEc:eee:moneco:v:76:y:2015:i:c:p:208-229
    DOI: 10.1016/j.jmoneco.2015.10.003
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    Cited by:

    1. Wang, Cheng, 2011. "Termination of dynamic contracts in an equilibrium labor market model," Journal of Economic Theory, Elsevier, vol. 146(1), pages 74-110, January.
    2. Borys Grochulski & Yuzhe Zhang, 2016. "Optimal Contracts with Reflection," Working Paper 16-14, Federal Reserve Bank of Richmond.
    3. Cheng Wang, 2013. "Incentives And The Cost Of Firing In An Equilibrium Labor Market Model With Endogenous Layoffs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(2), pages 443-472, May.
    4. Spear, Stephen E. & Wang, Cheng, 2005. "When to fire a CEO: optimal termination in dynamic contracts," Journal of Economic Theory, Elsevier, vol. 120(2), pages 239-256, February.
    5. Zhu, Weichao & Wang, Lu & Lang, Youze, 2022. "The costs and benefits of tournament in a frictional labor market," Economic Modelling, Elsevier, vol. 113(C).
    6. Cheng Wang & Youzhi Yang, 2023. "On the Pure Theory of Wage Dispersion," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 47, pages 246-277, January.

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