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An Incentive Theory of Matching

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  • Brown, Alessio J. G.

    ()
    (IZA)

  • Merkl, Christian

    ()
    (University of Erlangen-Nuremberg)

  • Snower, Dennis J.

    ()
    (Kiel Institute for the World Economy)

Abstract

This paper presents a theory explaining the labor market matching process through microeconomic incentives. There are heterogeneous variations in the characteristics of workers and jobs, and firms face adjustment costs in responding to these variations. Matches and separations are described through firms' job offer and firing decisions and workers' job acceptance and quit decisions. This approach obviates the need for a matching function. On this theoretical basis, we argue that the matching function is vulnerable to the Lucas critique. Our calibrated model for the U.S. economy can account for important empirical regularities that the conventional matching model cannot.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4145.

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Length: 29 pages
Date of creation: Apr 2009
Date of revision:
Publication status: forthcoming in: Macroeconomic Dynamics
Handle: RePEc:iza:izadps:dp4145

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Keywords: firing; quits; employment; unemployment; adjustment costs; incentives; matching; job offers; job acceptance;

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References

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  1. Krause, M.U. & Lubik, T.A., 2003. "The (Ir)relevance of Real Wage Rigidity in the New Keynesian Model with Search Frictions," Discussion Paper, Tilburg University, Center for Economic Research 2003-113, Tilburg University, Center for Economic Research.
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  10. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(4), pages 1120-1155, April.
  11. Pilar Díaz-Vázquez & Dennis J. Snower, 2003. "Can Insider Power Affect Employment?," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 4(2), pages 139-150, 05.
  12. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 25-49, March.
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  14. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 112-32, March.
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  16. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "Unemployment and vacancy fluctuations in the matching model: inspecting the mechanism," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Sum, pages 19-50.
  17. Ricardo Lagos, 2000. "An Alternative Approach to Search Frictions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(5), pages 851-873, October.
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  25. Fahr, René & Sunde, Uwe, 2004. "Occupational job creation: Patterns and implications," Munich Reprints in Economics, University of Munich, Department of Economics 20488, University of Munich, Department of Economics.
  26. Díaz-Vázquez, Pilar & Snower, Dennis J., 2003. "Can insider power affect employment?," Open Access Publications from Kiel Institute for the World Economy, Kiel Institute for the World Economy (IfW) 2992, Kiel Institute for the World Economy (IfW).
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