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The Unemployment Volatility Puzzle: The Role of Matching Costs Revisited

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Author Info
Silva , José Ignacio
Toledo, Manuel

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Abstract

Recently, Pissarides (2008) has argued that the standard search model with sunk fixed matching costs increases unemployment volatility without introducing an unrealistic wage response in new matches. We revise the role of matching costs and show that when these costs are not sunk and, therefore, can be partially passed on to new hired workers in the form of lower wages, the amplication mechanism of fixed matching costs is considerably reduced and wages in new hired positions become more sensitive to productivity shocks.

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File URL: http://mpra.ub.uni-muenchen.de/17719/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17719.

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Date of creation: 25 May 2009
Date of revision: 08 Oct 2009
Handle: RePEc:pra:mprapa:17719

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Related research
Keywords: unemployment volatility puzzle; search and matching; matching costs;

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Find related papers by JEL classification:
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
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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  1. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, 09. [Downloadable!] (restricted)
  2. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March. [Downloadable!]
  3. Loewenstein, Mark A & Spletzer, James R, 1998. "Dividing the Costs and Returns to General Training," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 142-71, January. [Downloadable!] (restricted)
  4. 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)
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  5. Robert E. Hall & Paul R. Milgrom, 2008. "The Limited Influence of Unemployment on the Wage Bargain," American Economic Review, American Economic Association, vol. 98(4), pages 1653-74, September. [Downloadable!]
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  6. 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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  7. Sarah Dolfin, 2006. "An examination of firms' employment costs," Applied Economics, Taylor and Francis Journals, vol. 38(8), pages 861-878, May. [Downloadable!] (restricted)
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