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The Labor Wedge as a Matching Friction

  • Anton A. Cheremukhin

    (UCLA)

  • Paulina Restrepo Echavarria

    (UCLA)

We use a search and matching model to decompose the labor wedge into three classes of labor market frictions and evaluate their role for the labor wedge and unemployment. We find that there is an asymmetric effect of labor market frictions on the labor wedge and unemployment. While the wedge is to a large extent explained by changes in matching efficiency, unemployment is accounted for by the combination of frictions to matching efficiency, job destruction and bargaining. If search and matching frictions give rise to the labor wedge, then it is relevant for explaining unemployment mainly through changes in matching efficiency.

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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 209.

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Date of creation: 2008
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Handle: RePEc:red:sed008:209
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