The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited

Abstract

Recently, a number of authors have argued that the standard search model cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies, given shocks of a plausible magnitude. We use data on the cost of vacancy creation and cyclicality of wages to identify the two key parameters of the model - the value of non-market activity and the bargaining weights. Our calibration implies that the model is, in fact, consistent with the data.

Keywords: search, matching, business cycles, labor markets

JEL Classification: E24, E32, J41, J63, J64