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An Incentive Theory of Matching

  • Brown, Alessio J. G.

    ()

    (IZA)

  • Merkl, Christian

    ()

    (University of Erlangen-Nuremberg)

  • Snower, Dennis J.

    ()

    (Kiel Institute for the World Economy)

This paper presents a theory explaining the labor market matching process through microeconomic incentives. There are heterogeneous variations in the characteristics of workers and jobs, and firms face adjustment costs in responding to these variations. Matches and separations are described through firms' job offer and firing decisions and workers' job acceptance and quit decisions. This approach obviates the need for a matching function. On this theoretical basis, we argue that the matching function is vulnerable to the Lucas critique. Our calibrated model for the U.S. economy can account for important empirical regularities that the conventional matching model cannot.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4145.

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Length: 29 pages
Date of creation: Apr 2009
Date of revision:
Publication status: published in: Macroeconomic Dynamics, 2013, [Online First]
Handle: RePEc:iza:izadps:dp4145
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  1. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
  2. Shigeru Fujita & Garey Ramey, 2007. "The cyclicality of separation and job finding rates," Working Papers 07-19, Federal Reserve Bank of Philadelphia.
  3. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  4. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "Unemployment and vacancy fluctuations in the matching model: inspecting the mechanism," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 19-50.
  5. Assar Lindbeck & Dennis J. Snower, 2001. "Insiders versus Outsiders," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 165-188, Winter.
  6. Mark Gertler & Antonella Trigari, 2006. "Unemployment Fluctuations with Staggered Nash Wage Bargaining," Computing in Economics and Finance 2006 525, Society for Computational Economics.
  7. Kai Christoffel & James Costain & Gregory de Walque & Keith Kuester & Tobias Linzert & Stephen Millard & Olivier Pierrard, 2009. "Inflation dynamics with labour market matching: assessing alternative specifcations," BCL working papers 38, Central Bank of Luxembourg.
  8. Carlos Thomas, 2006. "Search and Matching Frictions and Optimal Monetary Policy," CEP Discussion Papers dp0743, Centre for Economic Performance, LSE.
  9. Christian Haefke & Marcus Sonntag & Thijs van Rens, 2009. "Wage Rigidity and Job Creation," Kiel Working Papers 1504, Kiel Institute for the World Economy.
  10. Ricardo Lagos, 2000. "An Alternative Approach to Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 851-873, October.
  11. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1120-1155, April.
  12. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
  13. 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.
  14. Fujita, Shigeru & Ramey, Garey, 2007. "Job matching and propagation," Journal of Economic Dynamics and Control, Elsevier, vol. 31(11), pages 3671-3698, November.
  15. Krause, Michael U. & Lubik, Thomas A., 2007. "The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 706-727, April.
  16. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  17. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  18. Michele Belot & Jan Boone & Jan Van Ours, 2007. "Welfare-Improving Employment Protection," Economica, London School of Economics and Political Science, vol. 74(295), pages 381-396, 08.
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  20. René Fahr & Uwe Sunde, 2004. "Occupational job creation: patterns and implications," Oxford Economic Papers, Oxford University Press, vol. 56(3), pages 407-435, July.
  21. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
  22. Pilar Díaz-Vázquez & Dennis J. Snower, 2003. "Can Insider Power Affect Employment?," German Economic Review, Verein für Socialpolitik, vol. 4(2), pages 139-150, 05.
  23. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
  24. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  25. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  26. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  27. Fahr, René & Sunde, Uwe, 2004. "Occupational job creation: Patterns and implications," Munich Reprints in Economics 20488, University of Munich, Department of Economics.
  28. Díaz-Vázquez, Pilar & Snower, Dennis J., 2003. "Can insider power affect employment?," Open Access Publications from Kiel Institute for the World Economy 2992, Kiel Institute for the World Economy (IfW).
  29. Fahr, René & Sunde, Uwe, 2001. "Disaggregate Matching Functions," IZA Discussion Papers 335, Institute for the Study of Labor (IZA).
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