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It's About Time: Implications of the Period Length in an Equilibrium Job Search Model

  • Wolthoff, Ronald P.

    ()

    (University of Toronto)

This paper analyzes the role of the period length in a search model of the labor market and argues that it has profound implications for the market equilibrium. In the model, job offers and job destruction shocks arrive according to a Poisson process in continuous time, but institutional factors and/or informational frictions may delay workers' transitions into or out of a job. This effectively creates discrete time periods of arbitrary length, with continuous time being the limit case when the period length goes to zero. Longer periods introduce the possibility of simultaneity or recall of job offers, affecting the labor share, the amount of wage dispersion, as well as the allocation of workers over jobs with different productivity levels. Misspecification of the period length may therefore lead to inconsistent estimates of structural parameters and wrong conclusions on optimal policy.

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File URL: http://ftp.iza.org/dp6002.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6002.

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Length: 40 pages
Date of creation: Oct 2011
Date of revision:
Publication status: published in: International Economic Review, 2014, 55 (3), 839-867
Handle: RePEc:iza:izadps:dp6002
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  17. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2007. "Frictional Wage Dispersion in Search Models: A Quantitative Assessment," NBER Working Papers 13674, National Bureau of Economic Research, Inc.
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  21. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers 3548, C.E.P.R. Discussion Papers.
  22. Gautier, Pieter A. & Wolthoff, Ronald P., 2009. "Simultaneous search with heterogeneous firms and ex post competition," Labour Economics, Elsevier, vol. 16(3), pages 311-319, June.
  23. Carlos Carrillo-Tudela, 2009. "An Equilibrium Search Model When Firms Observe Workers' Employment Status," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 485-506, 05.
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  39. repec:inr:wpaper:155908 is not listed on IDEAS
  40. 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.
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