Mismatch

This paper develops a dynamic model of mismatch. Workers and jobs are randomly allocated to labor markets. Each market clears, but some have excess (unemployed) workers and some have excess (vacant) jobs. As workers and jobs switch markets, unemployed workers find vacancies and employed workers beco...

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Bibliographic Details
Published in:The American economic review 2007-09, Vol.97 (4), p.1074-1101
Main Author: Shimer, Robert
Format: Article
Language:English
Subjects:
Business cycle transmissions
Business cycles
Economic fluctuations
Economic models
Elasticity
Employment
Equilibrium
Job creation
Job openings
Job search
Labor market
Labor markets
Labour economics
Market theory
Matching
Modeling
Productivity
Search theory
Studies
Unemployment
Unemployment rates
Volatility
Wages
Workers
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Summary:This paper develops a dynamic model of mismatch. Workers and jobs are randomly allocated to labor markets. Each market clears, but some have excess (unemployed) workers and some have excess (vacant) jobs. As workers and jobs switch markets, unemployed workers find vacancies and employed workers become unemployed. The model is quantitatively consistent with the business cycle frequency comovement of unemployment, vacancies, and the job finding rate and explains much of these variables' volatility. It can also address cyclicality in the separation rate into unemployment and duration dependence in the job finding rate. The results are robust to some nonrandom mobility.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.97.4.1074