A Discrete-Time Stochastic Model of Job Matching

51 Pages Posted: 26 Nov 2001

See all articles by Tony E. Smith

Tony E. Smith

University of Pennsylvania - Department of Systems Engineering

Yves Zenou

Monash University - Department of Economics; Research Institute of Industrial Economics (IUI); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR); Stockholm University

Date Written: November 2001

Abstract

In this Paper, an explicit micro scenario is developed which yields a well-defined aggregate job-matching function. In particular, a stochastic model of job-matching behavior is constructed in which the system steady state is shown to be approximated by an exponential-type matching function, as the population becomes large. This steady-state approximation is first derived for fixed levels of both wages and search intensities, where it is shown (without using a free-entry condition) that there exists a unique equilibrium. It is then shown that if job searchers are allowed to choose their search intensities optimally, then this model is again consistent with a unique steady state. Finally, the assumption of a fixed wage is relaxed, and an optimal "offer wage" is derived for employers.

Keywords: Matching function, large population approximation, optimal search intensity

JEL Classification: D83, J41, J61

Suggested Citation

Smith, Tony E. and Zenou, Yves, A Discrete-Time Stochastic Model of Job Matching (November 2001). Available at SSRN: https://ssrn.com/abstract=290519

Tony E. Smith (Contact Author)

University of Pennsylvania - Department of Systems Engineering ( email )

School of Engineering & Applied Science
3718 Locust Walk
Philadelphia, PA 19104
United States
215-898-9647 (Phone)
215-898-5020 (Fax)

Yves Zenou

Monash University - Department of Economics ( email )

Australia

Research Institute of Industrial Economics (IUI) ( email )

P.O. Box 5501
S-114 85 Stockholm
Sweden

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

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