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The Cyclicality of Search Intensity in a Competitive Search Model

Shimer's puzzle is that the textbook Diamond-Mortensen-Pissarides model exhibits fluctuations in labor market variables that are an order of magnitude too small. Introducing search effort of the unemployed brings the model's predictions for these fluctuations very close to those seen in the data. The search cost function and the matching technology are intimately related and thus should be estimated simultaneously. Ignoring worker search effort leads to a large upward bias in the elasticity of matches with respect to vacancies. Evidence in support of the model's prediction of procyclical search effort is presented.

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Paper provided by Concordia University, Department of Economics in its series Working Papers with number 13002.

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Length: 30 pages
Date of creation: Sep 2013
Date of revision: Sep 2013
Handle: RePEc:crd:wpaper:13002
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  1. Marcelo Veracierto, 2009. "Establishments dynamics, vacancies and unemployment: a neoclassical synthesis," Working Paper Series WP-09-14, Federal Reserve Bank of Chicago.
  2. Kambourov, Gueorgui & Manovskii, Iourii, 2004. "Occupational Mobility and Wage Inequality," IZA Discussion Papers 1189, Institute for the Study of Labor (IZA).
  3. Kaas Leo, 2010. "Variable Search Intensity with Coordination Unemployment," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-33, October.
  4. Kurt Mitman & Iourii Manovskii & Fatih Karahan & Marcus Hagedorn, 2013. "Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects," 2013 Meeting Papers 1260, Society for Economic Dynamics.
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  6. Marcus Hagedorn & Iourii Manovskii, 2007. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," IEW - Working Papers 351, Institute for Empirical Research in Economics - University of Zurich.
  7. Francesco Furlanetto & Nicolas Groshenny, 2014. "Mismatch Shocks and Unemployment During the Great Recession," School of Economics Working Papers 2014-07, University of Adelaide, School of Economics.
  8. Robert E. Hall & Alan B. Krueger, 2012. "Evidence on the Incidence of Wage Posting, Wage Bargaining, and On-the-Job Search," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 56-67, October.
  9. Dale T. Mortensen, 2005. "More on Unemployment and Vacancy Fluctuations," 2005 Meeting Papers 326, Society for Economic Dynamics.
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  11. Mark Bils & Yongsung Chang & Sun-Bin Kim, 2011. "Worker Heterogeneity and Endogenous Separations in a Matching Model of Unemployment Fluctuations," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 128-54, January.
  12. Krueger, Alan B. & Mueller, Andreas I., 2008. "Job Search and Unemployment Insurance: New Evidence from Time Use Data," IZA Discussion Papers 3667, Institute for the Study of Labor (IZA).
  13. repec:bin:bpeajo:v:43:y:2011:i:2011-02:p:143-213 is not listed on IDEAS
  14. Jeremy Lise, 2013. "On-the-Job Search and Precautionary Savings," Review of Economic Studies, Oxford University Press, vol. 80(3), pages 1086-1113.
  15. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
  16. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
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  18. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  19. Giuseppe Moscarini & Francis G. Vella, 2008. "Occupational Mobility and the Business Cycle," NBER Working Papers 13819, National Bureau of Economic Research, Inc.
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  22. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
  23. Lkhagvasuren, Damba, 2012. "Big locational unemployment differences despite high labor mobility," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 798-814.
  24. Gary Solon & Robert Barsky & Jonathan A. Parker, 1994. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias?," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 1-25.
  25. Lkhagvasuren, Damba & Galindev, Ragchaasuren, 2008. "Discretization of highly persistent correlated AR(1) shocks," MPRA Paper 22523, University Library of Munich, Germany.
  26. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, March.
  27. 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.
  28. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  29. 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.
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