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On-the-job Search and Cyclical Unemployment: Crowding Out vs. Vacancy Effects

  • Daniel Martin

    ()

  • Olivier Pierrard

    ()

We incorporate on-the-job search (OTJS) into a real business cycle model in order to study whether OTJS increases the cyclical volatility of unemployment and vacancies. The increased search of employed workers during expansions has two effects on the unemployed: it induces firms to openmore vacancies, but employedworkers also crowd out unemployed workers in the job search. The overall effect of OTJS on unemployment volatility is thus ambiguous. We showanalytically and numerically that the difference between the (employer?s share of the) surplus ofmatchwith a previously employed versus a previously unemployed job seeker determines the degree to which OTJS increases unemployment volatility. We use this result to re-consider some related papers of OTJS and explain the amplification of volatility they obtain.

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File URL: http://www.bcl.lu/fr/publications/cahiers_etudes/64/BCLWP064.pdf
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Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 64.

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Length: 34 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:bcl:bclwop:bclwp064
Contact details of provider: Web page: http://www.bcl.lu/

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  1. Hagedorn, Marcus & Manovskii, Iourii, 2008. "The cyclical behavior of equilibrium unemployment and vacancies revisited," Working Paper Series 0853, European Central Bank.
  2. Michael Pries & Richard Rogerson, 2005. "Hiring Policies, Labor Market Institutions, and Labor Market Flows," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 811-839, August.
  3. Simon Burgess & Helene Turon, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies – A Comment," Bristol Economics Discussion Papers 05/573, Department of Economics, University of Bristol, UK.
  4. Shigeru Fujita, 2010. "Reality of on-the-job search," Working Papers 10-34, Federal Reserve Bank of Philadelphia.
  5. Michael U. Krause & Thomas A. Lubik, 2010. "On-the-job search and the cyclical dynamics of the labor market," Working Paper 10-12, Federal Reserve Bank of Richmond.
  6. Van Zandweghe, Willem, 2010. "On-the-job search, sticky prices, and persistence," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 437-455, March.
  7. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May.
  8. Shigeru Fugita & Garey Ramey, 2006. "Job matching and propagation," Working Papers 06-13, Federal Reserve Bank of Philadelphia.
  9. Murat Tasci, 2007. "On-the-job search and labor market reallocation," Working Paper 0725, Federal Reserve Bank of Cleveland.
  10. 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.
  11. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
  12. Kai Christoffel & Keith Kuester & Tobias Linzert, 2009. "The role of labor markets for Euro area monetary policy," Working Papers 09-1, Federal Reserve Bank of Philadelphia.
  13. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  14. Pierrard, Olivier, 2008. "Commuters, residents and job competition," Regional Science and Urban Economics, Elsevier, vol. 38(6), pages 565-577, November.
  15. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
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