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Efficient Search on the Job and the Business Cycle

  • Guido Menzio
  • Shouyong Shi

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.

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File URL: http://www.economics.utoronto.ca/public/workingPapers/tecipa-437.pdf
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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-437.

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Length: Unknown pages
Date of creation: 19 Jun 2011
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-437
Contact details of provider: Postal: 150 St. George Street, Toronto, Ontario
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References listed on IDEAS
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  1. Fabien Postel-Vinay & Giuseppe Moscarini, 2009. "Non-Stationary Search Equilibrium," 2009 Meeting Papers 31, Society for Economic Dynamics.
  2. Shouyong Shi, 2006. "Directed Search for Equilibrium Wage-Tenure Contracts," Working Papers tecipa-260, University of Toronto, Department of Economics.
  3. Margaret Stevens, 2004. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Strategies for Recruitment and Retention," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 535-551, 04.
  4. Guido Menzio & Shouyong Shi, 2011. "Efficient Search on the Job and the Business Cycle," Working Papers tecipa-437, University of Toronto, Department of Economics.
  5. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  6. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  7. Robert E. Hall & Alan B. Krueger, 2008. "Wage Formation between Newly Hired Workers and Employers: Survey Evidence," NBER Working Papers 14329, National Bureau of Economic Research, Inc.
  8. Barlevy, Gadi, 2002. "The Sullying Effect of Recessions," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 65-96, January.
  9. Thomas A. Lubik & Michael U. Krause, 2005. "On-the-job Search and the Cyclical Dynamics of the Labor Market," 2005 Meeting Papers 792, Society for Economic Dynamics.
  10. Francisco M. Gonzalez & Shouyong Shi, 2009. "An Equilibrium Theory of Learning, Search and Wages," Working Papers tecipa-384, University of Toronto, Department of Economics.
  11. Shouyong Shi & Guido Menzio, 2009. "Block Recursive Equilibria for Stochastic Models of Search on the Job," 2009 Meeting Papers 177, Society for Economic Dynamics.
  12. Guido Menzio & Espen R. Moen, 2010. "Worker replacement," NBER Working Papers 15983, National Bureau of Economic Research, Inc.
  13. Guido Menzio & Shouyong Shi, 2008. "Efficient Search on the Job and the Business Cycle, Second Version," PIER Working Paper Archive 09-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 28 Feb 2009.
  14. Guido Menzio & Shouyong Shi, 2010. "Directed Search on the Job, Heterogeneity, and Aggregate Fluctuations," Working Papers tecipa-390, University of Toronto, Department of Economics.
  15. Dale Mortensen & Eva Nagypal, 2007. "More on Unemployment and Vacancy Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(3), pages 327-347, July.
  16. John Kennan, 2010. "Private Information, Wage Bargaining and Employment Fluctuations," Review of Economic Studies, Oxford University Press, vol. 77(2), pages 633-664.
  17. Espen R. Moen & �sa Rosén, 2004. "Does Poaching Distort Training?," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1143-1162.
  18. Alain Delacroix & Shouyong Shi, 2003. "Directed Search On the Job and the Wage Ladder," Working Papers shouyong-03-04, University of Toronto, Department of Economics.
  19. Montgomery, James D, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 163-79, February.
  20. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  21. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  22. Ken Burdett & Melvyn Coles, 2003. "Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 71(5), pages 1377-1404, 09.
  23. 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.
  24. Pissarides, Christopher A, 1994. "Search Unemployment with On-the-Job Search," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 457-75, July.
  25. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  26. Mortensen, Dale T., 1994. "The cyclical behavior of job and worker flows," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1121-1142, November.
  27. Ramey, Garey, 2008. "Exogenous vs. Endogenous Separation," University of California at San Diego, Economics Working Paper Series qt0qb196qd, Department of Economics, UC San Diego.
  28. Guido Menzio, 2007. "A Theory of Partially Directed Search," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 748-769, October.
  29. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-54, September.
  30. Enchuan Shao & Pedro Silos, 2008. "Firm entry and labor market dynamics," Working Paper 2008-17, Federal Reserve Bank of Atlanta.
  31. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May.
  32. Michael W. Elsby & Ryan Michaels & Gary Solon, 2007. "The Ins and Outs of Cyclical Unemployment," NBER Working Papers 12853, National Bureau of Economic Research, Inc.
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