Job Matching and Propagation
35 Pages Posted: 19 Jul 2006
Date Written: July 2006
Abstract
In the U.S. labor market, the vacancy-unemployment ratio and employment react sluggishly to productivity shocks. The authors show that the job matching model in its standard form cannot reproduce these patterns due to excessively rapid vacancy responses. Extending the model to incorporate sunk costs for vacancy creation yields highly realistic dynamics. Creation costs induce entrant firms to smooth the adjustment of new openings following a shock, leading the stock of vacancies to react sluggishly
Keywords: Unemployment, Vacancies, Labor Adjustment, Matching
JEL Classification: E32, J63, J64
Suggested Citation: Suggested Citation
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