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Directed Search on the Job, Heterogeneity, and Aggregate Fluctuations

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  • Guido Menzio
  • Shouyong Shi

Abstract

We study a labor market where workers search for jobs both on the job and off the job. In the model, there are aggregate productivity shocks and match-specific shocks. We outline the proof of existence of an equilibrium which we call a block recursive equilibrium (BRE), in which individuals' decisions and market tightness are independent of the distribution of workers over wages or contracts. A critical assumption that is responsible for a BRE to exist is that search is directed by firms' posting of contracts. We explain why a BRE does exist under the assumption of directed search and why it does not under the assumption of random search. Finally, we generalize the proof of existence of a BRE to allow workers to be ex-ante heterogeneous with respect to some observable characteristics such as education and skill.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-390.

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Length: 8 pages
Date of creation: 21 Jan 2010
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-390

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Keywords: Directed Search; On the Job Search; Heterogeneity; Aggregate Fluctuations;

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  1. Guido Menzio & Shouyong Shi, 2009. "Block Recursive Equilibria for Stochastic Models of Search on the Job," NBER Working Papers 14907, National Bureau of Economic Research, Inc.
  2. Ken Burdett & Melvyn Coles, 2003. "Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 71(5), pages 1377-1404, 09.
  3. Guido Menzio & Shouyong Shi, 2008. "Efficient Search on the Job and the Business Cycle," PIER Working Paper Archive 08-029, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  4. Shouyong Shi, 2009. "Directed Search for Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 77(2), pages 561-584, 03.
  5. Alain Delacroix & Shouyong Shi, 2003. "Directed Search On the Job and the Wage Ladder," Working Papers shouyong-03-04, University of Toronto, Department of Economics.
  6. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
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