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Efficient Search on the Job and the Business Cycle

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  • Guido Menzio
  • Shouyong Shi

Abstract

The paper develops a model of directed search on the job where transitions of workers between unemployment, employment and across employers are driven by heterogeneity in the quality of firm-worker matches. The equilibrium is such that the agents' value and policy functions are independent of the distribution of workers across employment states. Hence, the model can be solved outside of steady-state and used to measure the effect of cyclical productivity shocks on the labor market. Productivity shocks are found to generate large fluctuations in workers' transitions, unemployment and vacancies when matches are experience good, but not when matches are inspection goods.

Suggested Citation

  • Guido Menzio & Shouyong Shi, 2011. "Efficient Search on the Job and the Business Cycle," Working Papers tecipa-437, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-437
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Directed search; On the Job Search; Business Cycles; Unemployment;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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