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The labor wedge as a matching friction

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  • Anton A. Cheremukhin
  • Paulina Restrepo-Echavarria

Abstract

The labor wedge accounts for a large fraction of business cycle fluctuations. This paper uses a search and matching model to decompose the labor wedge into three classes of labor market frictions and evaluate their role. We find that frictions to job destruction and bargaining commonly considered in the search literature are not helpful in explaining the labor wedge. We also identify an asymmetric effect of separation, bargaining and matching frictions on unemployment, as well as a potential solution to Shimer's puzzle.

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File URL: http://www.dallasfed.org/assets/documents/research/papers/2010/wp1004.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 1004.

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Date of creation: 2010
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Handle: RePEc:fip:feddwp:1004

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Keywords: Business cycles - Econometric models ; Labor supply ; Unemployment ; Labor turnover;

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  7. Murat Tasci & Andrea Pescatori, 2011. "Search Frictions and the Labor Wedge," IMF Working Papers 11/117, International Monetary Fund.
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  17. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
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