Abstract
Abstract The canonical matching model is the workhorse model of the labour market but lacks a proper amplification mechanism for productivity shocks. One way to amplify the effects of shocks is to allow workers to endogenously adjust their job search effort: as search effort is procyclical in the canonical model, volatilities increase. Yet, the empirical literature points against procyclical search effort, raising doubts of how acyclical (or countercyclical) search effort can coincide with volatile labour market variables in matching models. We show that they can coincide in a model with procyclical value of leisure and alternating-offer wage bargaining.
Highlights
The cyclicality of job search effort can be the key to understanding unemployment fluctuations
The empirical literature is far from agreeing that job search effort is procyclical; the bulk of the literature points against it. This poses the question: can a matching model simultaneously generate acyclical job search effort and highly volatile labour market variables? In this article, we show that the answer
2.3.3 Results We want to test whether the alternating-offer wage bargaining (AOB) variant of the model with the exogenous value of leisure can generate a volatile labour market tightness jointly with acyclical or countercyclical search effort
Summary
The cyclicality of job search effort can be the key to understanding unemployment fluctuations. If job search effort is countercyclical, it dampens the fluctuations in unemployment, preventing it from rising further in recessions. Endogenizing job search effort in matching models increases volatilities, which overcomes the well-known Shimer’s (2005) critique (e.g., Gomme and Lkhagvasuren, 2015). The empirical literature is far from agreeing that job search effort is procyclical; the bulk of the literature points against it. This poses the question: can a matching model simultaneously generate acyclical (or countercyclical) job search effort and highly volatile labour market variables? This poses the question: can a matching model simultaneously generate acyclical (or countercyclical) job search effort and highly volatile labour market variables? In this article, we show that the answer
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
