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Do Matching Frictions Explain Unemployment? Not in Bad Times

  • Pascal Michaillat

This paper models unemployment as the result of matching frictions and job rationing. Job rationing is a shortage of jobs arising naturally in an economic equilibrium from the combination of some wage rigidity and diminishing marginal returns to labor. During recessions, job rationing is acute, driving the rise in unemployment, whereas matching frictions contribute little to unemployment. Intuitively, in recessions jobs are lacking, the labor market is slack, recruiting is easy and inexpensive, so matching frictions do not matter much. In a calibrated model, cyclical fluctuations in the composition of unemployment are quantitatively large.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1024.

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Date of creation: Nov 2010
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Handle: RePEc:cep:cepdps:dp1024
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  12. Dickens, William T. & Götte, Lorenz & Groshen, Erica L. & Holden, Steinar & Messina, Julián & Schweitzer, Mark E. & Turunen, Jarkko & Ward-Warmedinger, Melanie, 2006. "How wages change: micro evidence from the International Wage Flexibility Project," Working Paper Series 0697, European Central Bank.
  13. Carlsson, Mikael & Eriksson, Stefan & Gottfries, Nils, 2006. "Testing Theories of Job Creation: Does Supply Create Its Own Demand?," IZA Discussion Papers 2024, Institute for the Study of Labor (IZA).
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  17. John G. Fernald, 2012. "A quarterly, utilization-adjusted series on total factor productivity," Working Paper Series 2012-19, Federal Reserve Bank of San Francisco.
  18. Pascal Michaillat, 2012. "Do Matching Frictions Explain Unemployment? Not in Bad Times," American Economic Review, American Economic Association, vol. 102(4), pages 1721-50, June.
  19. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
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  22. repec:oup:restud:v:63:y:1996:i:3:p:375-410 is not listed on IDEAS
  23. Pascal Michaillat, 2012. "Fiscal Multipliers over the Business Cycle," CEP Discussion Papers dp1115, Centre for Economic Performance, LSE.
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  25. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
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  27. repec:oup:restud:v:57:y:1990:i:2:p:279-98 is not listed on IDEAS
  28. repec:oup:qjecon:v:112:y:1997:i:3:p:759-89 is not listed on IDEAS
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