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Evaluating the Performance of the Search and Matching Model

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Author Info
Eran Yashiv

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Abstract

Does the search and matching model fit aggregate U.S. labor market data? While the modelhas become an important tool of macroeconomic analysis, recent literature pointed to somefailures in accounting for the data. This paper aims to answer two questions: (i) Does themodel fit the data, and, if so, on what dimensions? (ii) Does the data "fit" the model, i.e. whatare the data which are relevant to be explained by the model? The analysis shows that themodel does fit certain specifications of the data on many dimensions, though not on all. Thisincludes capturing the high persistence and high volatility of most of the key variables, aswell as the negative co-variation of unemployment and vacancies. It offers a workable,empirically-grounded version of the model for the analysis of aggregate U.S. labor marketdynamics. The paper provides macroeconomists guidance concerning the relevant "buildingblock" for modelling the labor market, both in terms of the model and in terms of the data.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0677.

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Date of creation: Feb 2005
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Handle: RePEc:cep:cepdps:dp0677

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Related research
Keywords: search matching U.S. labor market vacancies labor market flows business cycles.

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Private Pensions
J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Cahuc, Pierre & Marque, François & Wasmer, Etienne, 2004. "A Theory of Wages and Labour Demand with Intra-firm Bargaining and Matching Frictions," CEPR Discussion Papers 4605, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Rogerson, Richard, 1997. "Theory Ahead of Language in the Economics of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 73-92, Winter. [Downloadable!] (restricted)
  3. Eran Yashiv, 2005. "Forward-Looking Hiring Behavior and the Dynamics of the Aggregate Labor Market," 2005 Meeting Papers 360, Society for Economic Dynamics. [Downloadable!]
  4. Shigeru Fujita, 2004. "Vacancy persistence," Working Papers 04-23, Federal Reserve Bank of Philadelphia. [Downloadable!]
    Other versions:
  5. D Mortensen & C Pissarides, 1999. "Job Reallocation, Employment Fluctuations and Unemployment," CEP Discussion Papers 0421, Centre for Economic Performance, LSE.
    Other versions:
  6. Alan Krueger, 1999. "Measuring Labor's Share," Working Papers 792, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
    Other versions:
  7. Anderson, Patricia M & Meyer, Bruce D, 1997. "Unemployment Insurance Takeup Rates and the After-Tax Value of Benefits," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 913-37, August.
  8. Marcelo Veracierto, 2002. "On the cyclical behavior of employment, unemployment and labor force participation," Working Paper Series WP-02-12, Federal Reserve Bank of Chicago. [Downloadable!]
  9. Eran Yashiv, 2000. "Hiring as Investment Behavior," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 486-522, July. [Downloadable!] (restricted)
    Other versions:
  10. Robert E. Hall, 2005. "Job Loss, Job Finding, and Unemployment in the U.S. Economy Over the Past Fifty Years," NBER Working Papers 11678, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Yashiv, Eran, 2005. "Evaluating the Performance of the Search and Matching Model," CEPR Discussion Papers 5363, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Eran Yashiv, 2000. "The Determinants of Equilibrium Unemployment," American Economic Review, American Economic Association, vol. 90(5), pages 1297-1322, December. [Downloadable!] (restricted)
    Other versions:
  13. Yashiv, Eran, 2004. "Macroeconomic policy lessons of labor market frictions," European Economic Review, Elsevier, vol. 48(2), pages 259-284, April. [Downloadable!] (restricted)
  14. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 397-415, July. [Downloadable!] (restricted)
    Other versions:
  15. Hoyt Bleakley & Ann E. Ferris & Jeffrey C. Fuhrer, 1999. "New data on worker flows during business cycles," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 49-76. [Downloadable!]
  16. Monika Merz & Eran Yashiv, 2007. "Labor and the Market Value of the Firm," American Economic Review, American Economic Association, vol. 97(4), pages 1419-1431, September.
    Other versions:
  17. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-79, December. [Downloadable!] (restricted)
  18. Kim B. Clark & Lawrence H. Summers, 1979. "Labor Market Dynamics and Unemployment: A Reconsideration," NBER Reprints 0019, National Bureau of Economic Research, Inc.
  19. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 49(2), pages 217-27, April. [Downloadable!] (restricted)
  20. Cole, Harold L & Rogerson, Richard, 1999. "Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 933-59, November.
  21. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November. [Downloadable!] (restricted)
  22. Barbara Petrongolo & Christopher A. Pissarides, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June. [Downloadable!] (restricted)
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  23. Abowd, John M & Zellner, Arnold, 1985. "Estimating Gross Labor-Force Flows," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 254-83, June.
  24. Stephen R. G. Jones & Craig Riddell, 2000. "The Dynamics of US Labor Force Attachment," Econometric Society World Congress 2000 Contributed Papers 0011, Econometric Society. [Downloadable!]
  25. Bruce Fallick & Charles A. Fleischman, 2004. "Employer-to-employer flows in the U.S. labor market: the complete picture of gross worker flows," Finance and Economics Discussion Series 2004-34, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  26. repec:fth:prinin:413 is not listed on IDEAS
  27. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March. [Downloadable!] (restricted)
  28. Eran Yashiv, 2005. "Evaluating the Performance of the Search and Matching Model," CEP Discussion Papers dp0677, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  29. Pissarides, Christopher A, 1994. "Search Unemployment with On-the-Job Search," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 457-75, July. [Downloadable!] (restricted)
    Other versions:
  30. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Blackwell Publishing, vol. 63(3), pages 375-410, July. [Downloadable!] (restricted)
  31. Katharine G. Abraham & John C. Haltiwanger, 1995. "Real Wages and the Business Cycle," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1215-1264, September. [Downloadable!] (restricted)
  32. Katharine G. Abraham, 1987. "Help-Wanted Advertising, Job Vacancies, and Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1987-1), pages 207-248. [Downloadable!]
  33. Dale T. Mortensen, 1978. "Specific Capital and Labor Turnover," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 572-586, Autumn. [Downloadable!] (restricted)
  34. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1989-1), pages 1-76. [Downloadable!]
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  35. Katharine G. Abraham & James R. Spletzer & Jay C. Stewart, 1999. "Why Do Different Wage Series Tell Different Stories?," American Economic Review, American Economic Association, vol. 89(2), pages 34-39, May. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Shigeru Fugita & Garey Ramey, 2006. "Job matching and propagation," Working Papers 06-13, Federal Reserve Bank of Philadelphia. [Downloadable!]
    Other versions:
  2. Mariano Bosch & William Maloney, 2007. "Gross Worker Flows in the Presence of Informal Labor Markets: Evidence from Mexico, 1987-2002," IZA Discussion Papers 2864, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Bosch, Mariano & Maloney, William, 2006. "Gross worker flows in the presence of informal labor markets : the Mexican experience 1987-2002," Policy Research Working Paper Series 3883, The World Bank. [Downloadable!]
    Other versions:
  4. Julio J. Rotemberg, 2006. "Cyclical wages in a search-and-bargaining model with large firms," Proceedings, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  5. Yashiv, Eran, 2007. "U.S. Labour Market Dynamics Revisited," CEPR Discussion Papers 6481, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Yashiv, Eran, 2005. "Evaluating the Performance of the Search and Matching Model," CEPR Discussion Papers 5363, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Eran Yashiv, 2007. "U.S. Labor Market Dynamics Revisited," CEP Discussion Papers dp0831, Centre for Economic Performance, LSE. [Downloadable!]
  8. Federico S. Mandelman & Francesco Zanetti, 2008. "Technology shocks, employment, and labor market frictions," Working Paper 2008-10, Federal Reserve Bank of Atlanta. [Downloadable!]
  9. Christopher A. Pissarides, 2007. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," CEP Discussion Papers dp0839, Centre for Economic Performance, LSE. [Downloadable!]
  10. Eran Yashiv, 2006. "Evaluating the Performance of the Search and Matching Model," IZA Discussion Papers 1931, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  11. Jeremy Lise & Shannon Seitz & Jeffrey Smith, 2006. "Evaluating Search and Matching Models Using Experimental Data," Working Papers 1074, Queen's University, Department of Economics. [Downloadable!]
    Other versions:
  12. Keith Kuester, 2007. "Real price and wage rigidities in a model with mataching frictions," Working Paper Series 720, European Central Bank. [Downloadable!]
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