IDEAS home Printed from https://ideas.repec.org/a/eee/eecrev/v68y2014icp71-92.html
   My bibliography  Save this article

The labor wedge as a matching friction

Author

Listed:
  • Cheremukhin, Anton A.
  • Restrepo-Echavarria, Paulina

Abstract

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.

Suggested Citation

  • Cheremukhin, Anton A. & Restrepo-Echavarria, Paulina, 2014. "The labor wedge as a matching friction," European Economic Review, Elsevier, vol. 68(C), pages 71-92.
    • Handle: RePEc:eee:eecrev:v:68:y:2014:i:c:p:71-92
    DOI: 10.1016/j.euroecorev.2014.02.008
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0014292114000403
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.euroecorev.2014.02.008?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
    2. Jesús Fernández-Villaverde & Juan F. Rubio-Ramírez, 2007. "Estimating Macroeconomic Models: A Likelihood Approach," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(4), pages 1059-1087.
    3. Andrea Pescatori & Murat Tasci, 2011. "Search frictions and the labor wedge," Working Papers (Old Series) 1111, Federal Reserve Bank of Cleveland.
    4. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    5. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models—Rejoinder," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 211-219.
    6. Ramey, Garey & Shigeru Fujita, 2006. "The Cyclicality of Job Loss and Hiring," University of California at San Diego, Economics Working Paper Series qt4nz8p839, Department of Economics, UC San Diego.
    7. Mark Gertler & Luca Sala & Antonella Trigari, 2008. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1713-1764, December.
    8. Canova, Fabio, 1998. "Detrending and business cycle facts: A user's guide," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 533-540, May.
    9. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May.
    10. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
    11. Harold L. Cole & Lee E. Ohanian, 2002. "The U.S. and U.K. Great Depressions Through the Lens of Neoclassical Growth Theory," American Economic Review, American Economic Association, vol. 92(2), pages 28-32, May.
    12. Robert Shimer, 2009. "Convergence in Macroeconomics: The Labor Wedge," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 280-297, January.
    13. Robert E. Hall, 2006. "The labor market and macro volatility: a nonstationary general-equilibrium analysis," Proceedings, Federal Reserve Bank of San Francisco.
    14. Shigeru Fujita & Garey Ramey, 2009. "The Cyclicality Of Separation And Job Finding Rates," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 415-430, May.
    15. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, May.
    16. Thomas A. Lubik, 2009. "Estimating a search and matching model of the aggregate labor market," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 95(Spr), pages 101-120.
    17. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    18. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 113-172.
    19. Robert Shimer, 2010. "Labor Markets and Business Cycles," Economics Books, Princeton University Press, edition 1, number 9217.
    20. Robert Shimer, 2005. "The cyclicality of hires, separations, and job-to-job transitions," Review, Federal Reserve Bank of St. Louis, vol. 87(Jul), pages 493-508.
    21. 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.
    22. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
    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. Mr. Murat Tasci & Mr. Andrea Pescatori, 2011. "Search Frictions and the Labor Wedge," IMF Working Papers 2011/117, International Monetary Fund.
    25. Shigeru Fujita & Garey Ramey, 2007. "Reassessing the Shimer facts," Working Papers 07-2, Federal Reserve Bank of Philadelphia.
    26. Lester, Benjamin, 2010. "Directed search with multi-vacancy firms," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2108-2132, November.
    27. Farmer, Roger, 2005. "Shooting the Auctioneer," CEPR Discussion Papers 4825, C.E.P.R. Discussion Papers.
    28. Cogley, Timothy & Nason, James M., 1995. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 253-278.
    29. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-132, March.
    30. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
    31. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    32. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Beauchemin, Kenneth & Tasci, Murat, 2014. "Diagnosing Labor Market Search Models: A Multiple-Shock Approach," Macroeconomic Dynamics, Cambridge University Press, vol. 18(3), pages 548-572, April.
    2. Mark Gertler & Antonella Trigari, 2009. "Unemployment Fluctuations with Staggered Nash Wage Bargaining," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 38-86, February.
    3. 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.
    4. 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.
    5. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
    6. Sergio A. Lago Alves, 2018. "Monetary Policy, Trend Inflation, and Unemployment Volatility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(4), pages 637-673, June.
    7. Burcu Eyigungor, 2010. "Specific Capital and Vintage Effects on the Dynamics of Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 100(3), pages 1214-1237, June.
    8. Shigeru Fujita, 2011. "Dynamics of worker flows and vacancies: evidence from the sign restriction approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(1), pages 89-121, January/F.
    9. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
    10. Domenico Ferraro, 2018. "The Asymmetric Cyclical Behavior of the U.S. Labor Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 145-162, October.
    11. 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.
    12. Di Pace, Federico & Villa, Stefania, 2016. "Factor complementarity and labour market dynamics," European Economic Review, Elsevier, vol. 82(C), pages 70-112.
    13. Krause, Michael U. & Lopez-Salido, David & Lubik, Thomas A., 2008. "Inflation dynamics with search frictions: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 892-916, July.
    14. Petrosky-Nadeau, Nicolas & Wasmer, Etienne, 2015. "Macroeconomic dynamics in a model of goods, labor, and credit market frictions," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 97-113.
    15. Kato, Ryuta Ray & Miyamoto, Hiroaki, 2013. "Fiscal stimulus and labor market dynamics in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 30(C), pages 33-58.
    16. Yaniv Yedid-Levi, 2016. "Why does employment in all major sectors move together over the business cycle?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 22, pages 131-156, October.
    17. Josué Diwambuena & Raquel Fonseca & Stefan Schubert, 2021. "Italian Labour Frictions and Wage Rigidities in an Estimated DSGE," BEMPS - Bozen Economics & Management Paper Series BEMPS88, Faculty of Economics and Management at the Free University of Bozen.
    18. Farmer, Roger, 2005. "Shooting the Auctioneer," CEPR Discussion Papers 4825, C.E.P.R. Discussion Papers.
    19. Mark Gertler & Luca Sala & Antonella Trigari, 2008. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1713-1764, December.
    20. Nicolas Petrosky-Nadeau, 2014. "Credit, Vacancies and Unemployment Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 191-205, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:68:y:2014:i:c:p:71-92. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eer .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.