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The Cyclicality of Search Intensity in a Competitive Search Model

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Abstract

Shimer's puzzle is that the textbook Diamond-Mortensen-Pissarides model exhibits fluctuations in labor market variables that are an order of magnitude too small. Introducing search effort of the unemployed brings the model's predictions for these fluctuations very close to those seen in the data. The search cost function and the matching technology are intimately related and thus should be estimated simultaneously. Ignoring worker search effort leads to a large upward bias in the elasticity of matches with respect to vacancies. Evidence in support of the model's prediction of procyclical search effort is presented.

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File URL: http://alcor.concordia.ca/~pgomme/search-cycle-2013-09-12.pdf
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Bibliographic Info

Paper provided by Concordia University, Department of Economics in its series Working Papers with number 13002.

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Length: 30 pages
Date of creation: Sep 2013
Date of revision: Sep 2013
Handle: RePEc:crd:wpaper:13002

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Keywords: Variable Search Effort; Educational Differences in Unemployment Volatility; Endogenous Matching Technology; Time Use; Wage Posting; Competitive Search;

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