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The Labor Wedge as a Matching Friction

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  • Anton A. Cheremukhin

    (UCLA)

  • Paulina Restrepo Echavarria

    (UCLA)

Abstract

The labor wedge accounts for a large fraction of business cycle fluctuations. This paper uses a search and matching model to decompose the labor wedge into three classes of labor market frictions and evaluate their role. We find that frictions to job destruction and bargaining commonly considered in the search literature are not helpful in explaining the labor wedge. We also identify an asymmetric effect of separation, bargaining and matching frictions on unemployment, as well as a potential solution to Shimer's puzzle.
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  • Anton A. Cheremukhin & Paulina Restrepo Echavarria, 2008. "The Labor Wedge as a Matching Friction," 2008 Meeting Papers 209, Society for Economic Dynamics.
  • Handle: RePEc:red:sed008:209
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    Cited by:

    1. Andrea Pescatori & Murat Tasci, 2011. "Search frictions and the labor wedge," Working Paper 1111, Federal Reserve Bank of Cleveland.
    2. OSHIRO Jun & SATO Yasuhiro, 2016. "Industrial Structure in Urban Accounting," Discussion papers 16105, Research Institute of Economy, Trade and Industry (RIETI).
    3. Karabarbounis, Loukas, 2010. "Labor wedges and open economy puzzles," MPRA Paper 31370, University Library of Munich, Germany.
    4. repec:wly:japmet:v:31:y:2016:i:7:p:1197-1214 is not listed on IDEAS
    5. Francesco Furlanetto & Nicolas Groshenny, "undated". "Mismatch Shocks and Unemployment During the Great Recession," School of Economics Working Papers 2015-14, University of Adelaide, School of Economics.
    6. Francesco Furlanetto & Nicolas Groshenny, 2012. "Matching efficiency and business cycle fluctuations," Working Paper 2012/07, Norges Bank.
    7. Lawrence J. Christiano & Martin S. Eichenbaum & Mathias Trabandt, 2016. "Unemployment and Business Cycles," Econometrica, Econometric Society, vol. 84, pages 1523-1569, July.
    8. Anton Cheremukhin, 2010. "Labor Matching Model: Putting the Pieces Together," 2010 Meeting Papers 260, Society for Economic Dynamics.
    9. Beauchemin, Kenneth & Tasci, Murat, 2014. "Diagnosing Labor Market Search Models: A Multiple-Shock Approach," Macroeconomic Dynamics, Cambridge University Press, pages 548-572.
    10. Brinca, Pedro, 2014. "Distortions in the neoclassical growth model: A cross-country analysis," Journal of Economic Dynamics and Control, Elsevier, pages 1-19.
    11. Alejandro Justiniano & Claudio Michelacci, 2011. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies in the US and Europe," NBER Working Papers 17429, National Bureau of Economic Research, Inc.
    12. Ryan Chahrour & Sanjay K. Chugh & Tristan Potter, 2014. "Searching for Wages in an Estimated Labor Matching Model," Boston College Working Papers in Economics 867, Boston College Department of Economics, revised 20 Dec 2016.
    13. Alejandro Justiniano & Claudio Michelacci, 2012. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies in the United States and Europe," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 8(1), pages 169-235.
    14. Mathias Trabandt & Karl Walentin & Lawrence J. Christiano, 2008. "Introducing Financial Frictions and Unemployment into a Small Open Economy Model," 2008 Meeting Papers 423, Society for Economic Dynamics.
    15. Anton A. Cheremukhin, 2011. "Labor matching: putting the pieces together," Working Papers 1102, Federal Reserve Bank of Dallas.
    16. Malgorzata Skibinska, 2016. "What drives the labour wedge? A comparison between CEE countries and the Euro Area," EcoMod2016 9061, EcoMod.
    17. Christiano, Lawrence J. & Trabandt, Mathias & Walentin, Karl, 2011. "Introducing financial frictions and unemployment into a small open economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 1999-2041.
    18. Venky Venkateswaran, 2011. "Heterogeneous Information and Labor Market Fluctuations," 2011 Meeting Papers 1292, Society for Economic Dynamics.
    19. Beauchemin, Kenneth & Tasci, Murat, 2014. "Diagnosing Labor Market Search Models: A Multiple-Shock Approach," Macroeconomic Dynamics, Cambridge University Press, pages 548-572.
    20. Loukas Karabarbounis, 2012. "Home Production, Labor Wedges, and International Real Business Cycles," NBER Working Papers 18366, National Bureau of Economic Research, Inc.
    21. Malgorzata Skibinska, 2015. "What drives the labour wedge? A comparison between CEE countries and the Euro Area," IBS Working Papers 14/2015, Instytut Badan Strukturalnych.
    22. Skibińska, Małgorzata, 2016. "What drives the labour wedge? A comparison between CEE countries and the Euro Area," Economic Modelling, Elsevier, vol. 56(C), pages 148-161.
    23. Mikhail Simutin & JessieJiaxu Wang & Lars Kuehn, 2014. "A Labor Capital Asset Pricing Model," 2014 Meeting Papers 695, Society for Economic Dynamics.
    24. Lee E. Ohanian, 2010. "The Economic Crisis from a Neoclassical Perspective," Journal of Economic Perspectives, American Economic Association, pages 45-66.

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