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An Incentive Theory of Matching

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  • Alessio J. G. Brown
  • Christian Merkl
  • Dennis Snower

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 Kiel Institute for the World Economy in its series Kiel Working Papers with number 1512.

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Length: 28 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:kie:kieliw:1512

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

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References

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  23. Díaz-Vázquez, Pilar & Snower, Dennis J., 2003. "Can insider power affect employment?," Open Access Publications from Kiel Institute for the World Economy 2992, Kiel Institute for the World Economy (IfW).
  24. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
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