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Efficient Search on the Job and the Business Cycle

  • 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://www.jstor.org/stable/full/10.1086/660864
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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/

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  1. Thomas Lubik & Michael Krause, 2004. "On-the-Job Search and the Cyclical Dynamics of the Labor Market," Economics Working Paper Archive 513, The Johns Hopkins University,Department of Economics.
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  12. 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.
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  19. John Kennan, 2005. "Private Information, Wage Bargaining and Employment Fluctuations," 2005 Meeting Papers 555, Society for Economic Dynamics.
  20. Shouyong Shi, 2008. "Directed Search for Equilibrium Wage-Tenure Contracts," Working Papers tecipa-343, University of Toronto, Department of Economics.
  21. 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.
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  27. Fabien Postel-Vinay & Giuseppe Moscarini, 2009. "Non-Stationary Search Equilibrium," 2009 Meeting Papers 31, Society for Economic Dynamics.
  28. Enchuan Shao & Pedro Silos, 2008. "Firm entry and labor market dynamics," Working Paper 2008-17, Federal Reserve Bank of Atlanta.
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