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Efficient Search on the Job and the Business Cycle

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  • Guido Menzio
  • Shouyong Shi

Abstract

The paper develops a model of directed search on the job where transitions of workers between unemployment, employment and across employers are driven by heterogeneity in the quality of firm-worker matches. The equilibrium is such that the agents' value and policy functions are independent of the distribution of workers across employment states. Hence, the model can be solved outside of steady-state and used to measure the effect of cyclical productivity shocks on the labor market. Productivity shocks are found to generate large fluctuations in workers' transitions, unemployment and vacancies when matches are experience good, but not when matches are inspection goods.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-437.

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Length: Unknown pages
Date of creation: 19 Jun 2011
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-437

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Related research

Keywords: Directed search; On the Job Search; Business Cycles; Unemployment;

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References

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  1. Guido Menzio & Shouyong Shi, 2010. "Directed Search on the Job, Heterogeneity, and Aggregate Fluctuations," American Economic Review, American Economic Association, American Economic Association, vol. 100(2), pages 327-32, May.
  2. Margaret Stevens, 2004. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Strategies for Recruitment and Retention," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(2), pages 535-551, 04.
  3. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers, Centre for Economic Performance, LSE dp0110, Centre for Economic Performance, LSE.
  4. 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.
  5. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, Econometric Society, vol. 70(6), pages 2295-2350, November.
  6. Gary Solon & Ryan Michaels & Michael W. L. Elsby, 2009. "The Ins and Outs of Cyclical Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 84-110, January.
  7. Pissarides, Christopher A, 1994. "Search Unemployment with On-the-Job Search," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(3), pages 457-75, July.
  8. 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.
  9. Shouyong Shi, 2008. "Directed Search for Equilibrium Wage-Tenure Contracts," Working Papers, University of Toronto, Department of Economics tecipa-343, University of Toronto, Department of Economics.
  10. Gadi Barlevy, 2002. "The Sullying Effect of Recessions," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 65-96.
  11. Hall, Robert & Krueger, Alan B., 2008. "Wage Formation between Newly Hired Workers and Employers: Survey Evidence," IZA Discussion Papers 3775, Institute for the Study of Labor (IZA).
  12. Espen R. Moen & Asa Rosén, 2004. "Does Poaching Distort Training?," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(4), pages 1143-1162, October.
  13. Guido Menzio, 2007. "A Theory of Partially Directed Search," PIER Working Paper Archive 09-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  14. Shouyong Shi & Francisco Gonzalez, 2009. "An Equilibrium Theory of Learning, Search and Wages," 2009 Meeting Papers, Society for Economic Dynamics 27, Society for Economic Dynamics.
  15. Michael U. Krause & Thomas A. Lubik, 2010. "On-the-job search and the cyclical dynamics of the labor market," Working Paper, Federal Reserve Bank of Richmond 10-12, Federal Reserve Bank of Richmond.
  16. John Kennan, 2010. "Private Information, Wage Bargaining and Employment Fluctuations," Review of Economic Studies, Oxford University Press, vol. 77(2), pages 633-664.
  17. Ramey, Garey, 2008. "Exogenous vs. Endogenous Separation," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt0qb196qd, Department of Economics, UC San Diego.
  18. Menzio, Guido & Moen, Espen R, 2008. "Worker Replacement," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7075, C.E.P.R. Discussion Papers.
  19. Alain Delacroix & Shouyong Shi, 2003. "Directed Search On the Job and the Wage Ladder," Working Papers, University of Toronto, Department of Economics shouyong-03-04, University of Toronto, Department of Economics.
  20. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, Elsevier, vol. 50(4), pages 811-830, May.
  21. Montgomery, James D, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(1), pages 163-79, February.
  22. Dale T. Mortensen & Eva Nagypal, 2005. "More on Unemployment and Vacancy Fluctuations," NBER Working Papers 11692, National Bureau of Economic Research, Inc.
  23. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  24. Mortensen, Dale T., 1994. "The cyclical behavior of job and worker flows," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 18(6), pages 1121-1142, November.
  25. Enchuan Shao & Pedro Silos, 2008. "Firm entry and labor market dynamics," Working Paper, Federal Reserve Bank of Atlanta 2008-17, Federal Reserve Bank of Atlanta.
  26. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(2), pages 385-411, April.
  27. Fabien Postel-Vinay & Giuseppe Moscarini, 2009. "Non-Stationary Search Equilibrium," 2009 Meeting Papers, Society for Economic Dynamics 31, Society for Economic Dynamics.
  28. Ken Burdett & Melvyn Coles, 2003. "Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, Econometric Society, vol. 71(5), pages 1377-1404, 09.
  29. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, Econometric Society, vol. 59(5), pages 1425-54, September.
  30. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 36(2), pages 269-300, November.
  31. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 50-65, March.
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  1. Directed labor search and the cycle
    by Economic Logician in Economic Logic on 2008-08-26 15:02:00
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