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Efficient Search on the Job and the Business Cycle

Listed author(s):
  • Guido Menzio
  • Shouyong Shi

The paper develops a model of directed search on the job in which transitions of workers between unemployment and 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 endogenous distribution of workers across employment states. Hence, the model can be solved outside of the 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 goods, but not when matches are inspection goods.

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File URL: http://dx.doi.org/10.1086/660864
Download Restriction: Access to the online full text or PDF requires a subscription.

File URL: http://dx.doi.org/10.1086/660864
Download Restriction: Access to the online full text or PDF requires a subscription.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 119 (2011)
Issue (Month): 3 ()
Pages: 468-510

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Handle: RePEc:ucp:jpolec:doi:10.1086/660864
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

References listed on IDEAS
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  1. Enchuan Shao & Pedro Silos, 2008. "Firm entry and labor market dynamics," FRB Atlanta Working Paper 2008-17, Federal Reserve Bank of Atlanta.
  2. Guido Menzio & Espen Moen, 2008. "Worker Replacement," PIER Working Paper Archive 08-040, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  3. Shouyong Shi, 2008. "Directed Search for Equilibrium Wage-Tenure Contracts," Working Papers tecipa-343, University of Toronto, Department of Economics.
  4. Michael W. Elsby & Ryan Michaels & Gary Solon, 2007. "The Ins and Outs of Cyclical Unemployment," NBER Working Papers 12853, National Bureau of Economic Research, Inc.
  5. Michael U. Krause & Thomas A. Lubik, 2006. "On-the-Job Search and the Cyclical Dynamics of the Labor Market," Computing in Economics and Finance 2006 455, Society for Computational Economics.
  6. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-1454, September.
  7. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May.
  8. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  9. Guido Menzio & Shouyong Shi, 2011. "Efficient Search on the Job and the Business Cycle," Working Papers tecipa-437, University of Toronto, Department of Economics.
  10. Dale T. Mortensen, 2005. "More on Unemployment and Vacancy Fluctuations," 2005 Meeting Papers 326, Society for Economic Dynamics.
  11. Guido Menzio & Shouyong Shi, 2009. "Block Recursive Equilibria for Stochastic Models of Search on the Job," PIER Working Paper Archive 09-005, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  12. John Kennan, 2005. "Private Information, Wage Bargaining and Employment Fluctuations," 2005 Meeting Papers 555, Society for Economic Dynamics.
  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. James D. Montgomery, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 163-179.
  15. Dale T. Mortensen & Christopher A. Pissarides, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 397-415.
  16. Christopher A. Pissarides, 1994. "Search Unemployment with On-the-job Search," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 457-475.
  17. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  18. Stevens, M., 2000. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Stratgies for Recruitment and Retention," Economics Papers 2000-w10, Economics Group, Nuffield College, University of Oxford.
  19. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers 3548, C.E.P.R. Discussion Papers.
  20. Espen R. Moen & Åsa Rosén, 2004. "Does Poaching Distort Training?," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1143-1162.
  21. Francisco M. Gonzalez & Shouyong Shi, 2009. "An Equilibrium Theory of Learning, Search and Wages," Working Papers tecipa-384, University of Toronto, Department of Economics.
  22. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  23. Guido Menzio & Shouyong Shi, 2010. "Directed Search on the Job, Heterogeneity, and Aggregate Fluctuations," Working Papers tecipa-390, University of Toronto, Department of Economics.
  24. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  25. Guido Menzio & Shouyong Shi, 2008. "Efficient Search on the Job and the Business Cycle, Second Version," PIER Working Paper Archive 09-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 28 Feb 2009.
  26. Ken Burdett & Melvyn Coles, 2003. "Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 71(5), pages 1377-1404, 09.
  27. 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.
  28. Mortensen, Dale T., 1994. "The cyclical behavior of job and worker flows," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1121-1142, November.
  29. 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).
  30. Gadi Barlevy, 2002. "The Sullying Effect of Recessions," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 65-96.
  31. Ramey, Garey, 2008. "Exogenous vs. Endogenous Separation," University of California at San Diego, Economics Working Paper Series qt0qb196qd, Department of Economics, UC San Diego.
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