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Wage Determination and Labor Market Volatility under Mismatch

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  • William Hawkins

    (University of Rochester)

Abstract

Shimer (2007, American Economic Review) introduced a model of mismatch, in which limited mobility of vacant jobs and unemployed workers provides a microfoundation for their coexistence in equilibrium. Shimer assumed that the short side of a local labor market receives all the gains from trade, and argues that the model helps to explain the volatility of unemployment and the vacancy-unemployment ratio in response to productivity shocks. I show that the assumption on wages is essential for this conclusion by considering alternative assumptions. When wages are determined according to the Shapley value, they depend more smoothly on local labor market conditions, but unemployment and the vacancy-unemployment ratio are even more volatile. However, in both cases amplification relative to the Mortensen-Pissarides benchmark arises only because the implied process for wages is more volatile.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 797.

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Date of creation: 2012
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Handle: RePEc:red:sed012:797

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  1. Olivier Blanchard & Jordi Gali, 2008. "Labor Markets and Monetary Policy: A New-Keynesian Model with Unemployment," NBER Working Papers 13897, National Bureau of Economic Research, Inc.
  2. John Kennan, 2005. "Private Information, Wage Bargaining and Employment Fluctuations," 2005 Meeting Papers 555, Society for Economic Dynamics.
  3. Kevin J. Stiroh, 2006. "Volatility accounting: a production perspective on increased economic stability," Staff Reports 245, Federal Reserve Bank of New York.
  4. Perez-Castrillo, David & Wettstein, David, 2001. "Bidding for the Surplus : A Non-cooperative Approach to the Shapley Value," Journal of Economic Theory, Elsevier, vol. 100(2), pages 274-294, October.
  5. Mark Gertler & Antonella Trigari, 2006. "Unemployment fluctuations with staggered Nash wage bargaining," Proceedings, Federal Reserve Bank of San Francisco.
  6. Caballero, Ricardo J & Hammour, Mohamad L, 1996. "On the Timing and Efficiency of Creative Destruction," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 805-52, August.
  7. James Costain & Michael Reiter, 2005. "Business Cycles, Unemployment Insurance and the Calibration of Matching Models," Working Papers 215, Barcelona Graduate School of Economics.
  8. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  9. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  10. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
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Cited by:
  1. William Hawkins, 2013. "Worker Flows under Mismatch," 2013 Meeting Papers 479, Society for Economic Dynamics.

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