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Implications of Search Frictions: Matching Aggregate and Establishment-level Observations

  • Russell Cooper
  • John Haltiwanger
  • Jonathan L. Willis

This paper studies hours, employment, vacancies and unemployment at micro and macro levels. It is built around a set of facts concerning the variability of unemployment and vacancies in the aggregate and, at the establishment level, the distribution of net employment growth and the comovement of hours and employment growth. A search model with frictions in hiring and firing is used as a framework to understand these observations. Notable features of this search model include non-convex costs of posting vacancies, establishment level profitability shocks and a contracting framework that determines the response of hours and wages to shocks. The search friction creates an endogenous, cyclical adjustment cost. We specify and estimate the parameters of the search model using simulated method of moments to match establishment-level and aggregate observations. The estimated search model is able to capture both the aggregate and establishment-level facts.

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File URL: http://www.nber.org/papers/w13115.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13115.

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Date of creation: May 2007
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Handle: RePEc:nbr:nberwo:13115
Note: EFG
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  1. Murat Tasci, 2007. "On-the-job search and labor market reallocation," Working Paper 0725, Federal Reserve Bank of Cleveland.
  2. Dale T. Mortensen & Christopher A. Pissarides, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 397-415.
  3. 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.
  4. Ricardo J. Caballero & Eduardo M. R. A. Engel, 1993. "Microeconomic Adjustment Hazards and Aggregate Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 108(2), pages 359-383.
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  6. Fujita, Shigeru & Ramey, Garey, 2005. "The Dynamic Beveridge Curve," University of California at San Diego, Economics Working Paper Series qt4m04n09h, Department of Economics, UC San Diego.
  7. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2009. "The establishment-level behavior of vacancies and hiring," Working Papers 09-14, Federal Reserve Bank of Philadelphia.
  8. Hamermesh, Daniel S. & Pfann, Gerard Antonie, 1996. "Adjustment Costs in Factor Demand," CEPR Discussion Papers 1371, C.E.P.R. Discussion Papers.
  9. Ricardo J. Caballero & Eduardo Engel & John Haltiwanger, 1996. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," Documentos de Trabajo 6, Centro de Economía Aplicada, Universidad de Chile.
  10. Cole, Harold L & Rogerson, Richard, 1999. "Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 933-59, November.
  11. Russel W. Cooper & John C. Haltiwanger & Jonathan Willis, 2004. "Dynamics of Labor Demand: Evidence from Plant-level Observations and Aggregate Implications," NBER Working Papers 10297, National Bureau of Economic Research, Inc.
  12. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  13. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  14. 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.
  15. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  16. William Hawkins & Daron Acemoglu, 2010. "Equilibrium Unemployment in a Generalized Search Model," 2010 Meeting Papers 1040, Society for Economic Dynamics.
  17. Katharine G. Abraham & John C. Haltiwanger, 1995. "Real Wages and the Business Cycle," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1215-1264, September.
  18. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 666-89, August.
  19. Nickell, S.J., 1987. "Dynamic models of labour demand," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 9, pages 473-522 Elsevier.
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