Search Frictions and Evolving Labour Market Dynamics

26 Pages Posted: 7 Jun 2019 Last revised: 23 Mar 2021

See all articles by Michael Ellington

Michael Ellington

University of Liverpool

Christopher Martin

University of Bath - Department of Economics

Bingsong Wang

affiliation not provided to SSRN

Date Written: March 12, 2021

Abstract

This paper puts search frictions models under novel empirical scrutiny and tests their ability to match empirical observations. To capture changing dynamics we fit an extended Bayesian time-varying parameter VAR to US labour market data from 1962–2016. Our results indicate that these models are unable to match the responses of key variables to identified structural shocks. We document substantial changes in the transmission, and economic importance, of shocks throughout time that this framework is unable to explain. In particular, although search frictions models use productivity and job separations shocks to explain the labour market, these shocks only explain at best 50% of fluctuations in key labour market variables.

Keywords: time-varying parameter model, real wages, search frictions

JEL Classification: E23, E32, J23, J30, J64

Suggested Citation

Ellington, Michael and Martin, Christopher and Wang, Bingsong, Search Frictions and Evolving Labour Market Dynamics (March 12, 2021). Journal of Economic Dynamics and Control, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3391739 or http://dx.doi.org/10.2139/ssrn.3391739

Michael Ellington (Contact Author)

University of Liverpool ( email )

Chatham Street
Liverpool, L69 7ZA
United Kingdom

Christopher Martin

University of Bath - Department of Economics ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

HOME PAGE: http://www.bath.ac.uk/econ-dev/people/cimartin.html

Bingsong Wang

affiliation not provided to SSRN

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