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Understanding Labour Market Frictions: A Tobin’s Q Approach

  • Parantap Basu

    (Department of Economics and Finance University of Durham UK)

Labour market friction is viewed as the Tobin’s Q of an employed worker as opposed to the position of the Beveridge curve. This Tobin’s Q is inversely proportional to the average quality of the match between employers and workers. Based on this measure, I find that the labour market friction has a procyclical trend in the US, which is indicative of the fact that firms compromise on the quality of the skill match during an expansion.

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Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2006 with number 35.

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Date of creation: 02 Feb 2007
Date of revision:
Handle: RePEc:mmf:mmfc06:35
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  1. Robert G. Valletta, 2005. "Why has the U.S. Beveridge curve shifted back? new evidence using regional data," Working Paper Series 2005-25, Federal Reserve Bank of San Francisco.
  2. 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.
  3. Merz, Monika & Yashiv, Eran, 2003. "Labor and the Market Value of the Firm," IZA Discussion Papers 965, Institute for the Study of Labor (IZA).
  4. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  5. Banerjee, Anurag N, 2001. "Sensitivity of Univariate AR(1) Time-Series Forecasts Near the Unit Root," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 20(3), pages 203-29, April.
  6. Giorgio Primiceri & Alejandro Justiniano, 2006. "The Time Varying Volatility of Macroeconomic Fluctuations," 2006 Meeting Papers 353, Society for Economic Dynamics.
  7. 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.
  8. E. Paul Durrenberger, 2005. "Labour," Chapters, in: A Handbook of Economic Anthropology, chapter 8 Edward Elgar.
  9. Cochrane, John H, 1991. " Production-Based Asset Pricing and the Link between Stock Returns and Economic Fluctuations," Journal of Finance, American Finance Association, vol. 46(1), pages 209-37, March.
  10. Katharine G. Abraham & Lawrence F. Katz, 1984. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," NBER Working Papers 1410, National Bureau of Economic Research, Inc.
  11. Alejandro Justiniano & Northwestern University, 2006. "The Time Varying Volatility of Macroeconomic Fluctuations," Computing in Economics and Finance 2006 219, Society for Computational Economics.
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