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Search Frictions and Evolving Labour Market Dynamics

Author

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  • Ellington, Michael

    (University of Liverpool)

  • Martin, Chris

    (University of Bath)

  • Wang, Bingsong

    (University of Warwick)

Abstract

This paper puts search frictions models under novel empirical scrutiny and tests their ability to match empirical observations. To capture changing dynamics we fit an extended Bayesian time-varying parameter VAR to US labour market data from 1962–2016. We find strong evidence against key predictions of the search frictions model, namely a large surge in vacancy creation in response to productivity shocks and a negative relationship between the volatilities of unemployment and wages. Our results question the amplification mechanism embedded in search frictions models and cast doubt on wage rigidity as a source of unemployment volatility.

Suggested Citation

  • Ellington, Michael & Martin, Chris & Wang, Bingsong, 2019. "Search Frictions and Evolving Labour Market Dynamics," The Warwick Economics Research Paper Series (TWERPS) 1195, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1195
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    More about this item

    Keywords

    time-varying parameter model ; real wages ; search frictions;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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