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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
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  3. Pierre Cahuc & Francois Marque & Etienne Wasmer, 2008. "A Theory Of Wages And Labor Demand With Intra-Firm Bargaining And Matching Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 943-972, 08.
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  8. John Fernald, 2012. "A quarterly, utilization-adjusted series on total factor productivity," Working Paper Series 2012-19, Federal Reserve Bank of San Francisco.
  9. Pascal Michaillat & Emmanuel Saez & Camille Landais, 2011. "Optimal Unemployment Insurance over the Business Cycle," 2011 Meeting Papers 124, Society for Economic Dynamics.
  10. Marcus Hagedorn & Iourii Manovskii, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," 2005 Meeting Papers 460, Society for Economic Dynamics.
  11. Pedro S. Martins & Gary Solon & Jonathan Thomas, 2010. "Measuring What Employers Really Do about Entry Wages over the Business Cycle," NBER Working Papers 15767, National Bureau of Economic Research, Inc.
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  17. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  18. Pascal Michaillat, 2010. "Do Matching Frictions Explain Unemployment? Not in Bad Times," CEP Discussion Papers dp1024, Centre for Economic Performance, LSE.
  19. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Wiley Blackwell, vol. 63(3), pages 375-410, July.
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  25. Barron, John M & Berger, Mark C & Black, Dan A, 1997. "Employer Search, Training, and Vacancy Duration," Economic Inquiry, Western Economic Association International, vol. 35(1), pages 167-92, January.
  26. Pascal Michaillat, 2012. "Fiscal Multipliers over the Business Cycle," CEP Discussion Papers dp1115, Centre for Economic Performance, LSE.
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  28. Alexopoulos, Michelle, 2007. "A monetary business cycle model with unemployment," Journal of Economic Dynamics and Control, Elsevier, vol. 31(12), pages 3904-3940, December.
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