Hostname: page-component-8448b6f56d-qsmjn Total loading time: 0 Render date: 2024-04-23T13:13:00.980Z Has data issue: false hasContentIssue false
  • English
  • Français

AN INCENTIVE THEORY OF MATCHING

Published online by Cambridge University Press:  23 October 2013

Alessio Brown ,
Christian Merkl  and
Dennis Snower
Alessio Brown
Affiliation:
Kiel Institute for the World Economy
Christian Merkl*
Affiliation:
Friedrich-Alexander-University Erlangen-Nürnberg and Kiel Institute for the World Economy
Dennis Snower
Affiliation:
Kiel Institute for the World Economy and Christian-Albrechts-University Kiel
*
Address correspondence to: Christian Merkl, Friedrich-Alexander-Universität Erlangen-Nürnberg, Lange Gasse 20, 90403 Nürnberg, Germany; e-mail: christian.merkl@fau.de.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper presents a theory of the labor market matching process in terms of incentive-based, two-sided search among heterogeneous agents. The matching process is decomposed into its two component stages: the contact stage, in which job searchers make contact with employers, and the selection stage, in which they decide whether to match. We construct a theoretical model explaining two-sided selection through microeconomic incentives. Firms face adjustment costs in responding to heterogeneous variations in the characteristics of workers and jobs. Matches and separations are described through firms' job offer and firing decisions and workers' job acceptance and quit decisions. Our calibrated model for the United States can account for important empirical regularities, such as the large volatilities of labor market variables, that the conventional matching model cannot.

Keywords

MatchingIncentivesAdjustment CostsUnemploymentEmploymentQuitsFiringJob OffersJob Acceptance
Type
Articles
Information
Macroeconomic Dynamics , Volume 19 , Issue 3 , April 2015 , pp. 643 - 668
Copyright
Copyright © Cambridge University Press 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Belot, Michèle, Boone, Jan, and van Ours, Jan C. (2007) Welfare-improving employment protection. Economica 74, 381–396.CrossRefGoogle Scholar
Bentolila, Samuel and Bertola, Guiseppe (1990) Firing costs and labour demand: How bad is eurosclerosis? Review of Economic Studies 57 (3), 381–402.Google Scholar
Binmore, Ken, Rubinstein, Ariel, and Wolinsky, Asher (1986) The Nash bargaining solution in economic modelling. RAND Journal of Economics 17 (2), 176–188.Google Scholar
Brown, Alessio J.G., Christian, Merkl, and Dennis, J. Snower (2012) An Incentive Theory of Matching. Working paper 1512, Kiel Institute for the World Economy (first version 2009; updated 2012).Google Scholar
Carneiro, Anabela, Guimarães, Paulo, and Portugal, Pedro (2012) Real wages and the business cycle: Accounting for worker, firm and job-title heterogeneity. American Economic Journal: Macroeconomics 4 (2), 133–152.Google Scholar
Christiano, Lawrence, Eichenbaum, Martin, and Evans, Charles (2005) Nominal rigidities and the dynamic effects of a shock to monetary policy. Journal of Political Economy 113 (1), 1–45.Google Scholar
Christiano, Lawrence, Trabandt, Mathias, and Walentin, Karl (2010) Involuntary Unemployment and the Business Cycle. NBER working paper 15801.Google Scholar
Costain, James S. and Reiter, Michael (2008) Business cycles, unemployment insurance, and the calibration of matching models. Journal of Economic Dynamics and Control 32 (4), 1120–1155.Google Scholar
Danthine, Samuel (2005) Two-Sided Search, Heterogeneous Skills and Labor Market Performance. IZA working paper 1572.Google Scholar
Den Haan, Wouter J., Ramey, Garey, and Watson, Joel (2000) Job destruction and propagation of shocks. American Economic Review 90 (3), 482–498.Google Scholar
Dolfin, Sarah (2006) An examination of firms' employment costs. Applied Economics 38 (8), 861–878.CrossRefGoogle Scholar
Faia, Ester (2008) Optimal monetary policy rules with labor market frictions. Journal of Economic Dynamics and Control 32 (5), 1600–1621.Google Scholar
Faia, Ester (2009) Ramsey monetary policy with labor market frictions. Journal of Monetary Economics 56 (4), 570–581.CrossRefGoogle Scholar
Fujita, Shigeru and Ramey, Garey (2009) The cyclicality of separation and job finding rates. International Economic Review 50 (2), 415–430.Google Scholar
Gali, Jordi (2011) The return of the wage Phillips curve. Journal of the European Economic Association 9 (3), 436–461.Google Scholar
Gali, Jordi, Smets, Frank, and Wouters, Rafael (2011) Unemployment in an Estimated New Keynesian Model. NBER discussion paper 17084.Google Scholar
Gartner, Hermann, Merkl, Christian, and Rothe, Thomas (2012) Sclerosis and large volatilities. Two sides of the same coin. Economics Letters 117 (1), 196–109.Google Scholar
Haefke, Christian, Sonntag, Markus, and van Rens, Thijs (2008) Wage Rigidity and Job Creation. IZA working paper 3714.Google Scholar
Hagedorn, Marcus and Manovskii, Iourii (2008) The cyclical behavior of equilibrium unemployment and vacancies revisited. American Economic Review 98 (4), 1692–1706.Google Scholar
Hall, Robert E. (2005) Employment fluctuations with equilibrium wage stickiness. American Economic Review 95 (1), 50–65.Google Scholar
Hall, Robert E. (2006) Job loss, job finding and unemployment in the US economy over the past fifty years. NBER Maroeconomics Annual 20, 101–137.Google Scholar
Hall, Robert E. and Milgrom, Robert (2008) The limited influence of unemployment on the wage bargain. American Economic Review 98 (4), 1653–1674.Google Scholar
Heathcote, Jonathan, Fabrizio, Perri, and Violante, Giovanni L. (2010) Unequal we stand: An empirical analysis of economic inequality in the United States, 1967–2006. Review of Economic Dynamics 13, 15–51.Google Scholar
Hornstein, Andreas, Krusell, Per, and Violante, Giovanni L. (2005) Unemployment and vacancy fluctuations in the matching model: Inspecting the mechanism. Federal Reserve Bank of Richmond Economic Quarterly 91 (3), 19–51.Google Scholar
Khalifa, Sherif (2012) Job competition, crowding out, and unemployment fluctuations. Macroeconomic Dynamics 16, 1–34.Google Scholar
Krause, Michael U. and Lubik, Thomas A. (2007) The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions. Journal of Monetary Economics 54 (3), 706–727.Google Scholar
Lechthaler, Wolfgang, Merkl, Christian, and Snower, Dennis (2010) Monetary persistence and the labor market: A new perspective. Journal of Economic Dynamics and Control 34 (5), 968–983.Google Scholar
Lechthaler, Wolfgang and Snower, Dennis (2013) Quadratic labor adjustment costs, business cycle dynamics and optimal monetary policy. Macroeconomic Dynamics 17, 464–475.Google Scholar
Martins, Pedro, Snell, Andy, Stueber, Heiko, and Thomas, Jonathan (2012a) Minu, Startu and All That: Pitfalls in Estimating the Sensitivity of a Worker's Wage to Aggregate Unemployment. Mimeo, University of Edinburgh (version March 15, 2012).Google Scholar
Martins, Pedro, Solon, Gary, and Thomas, Jonathan (2012b) Measuring what employers do about entry wages over the business cycle: A new approach. American Economic Journal: Macroeconomics 4 (4), 36–55.Google Scholar
Menzio, Guido and Shou-Yong, Shi (2011) Efficient search on the job and the business cycle. Journal of Political Economy 119 (3), 468–510.Google Scholar
Michaillat, Pascal (2012) Do matching frictions explain unemployment? Not in bad times. American Economic Review 102 (4), 1721–1750.Google Scholar
Mortensen, Dale T. and Pissarides, Christopher A. (1994) Job creation and job destruction in the theory of unemployment. Review of Economic Studies 61 (3), 397–415.CrossRefGoogle Scholar
Moyen, Stéphane and Nikolai, Stähler (in press) Unemployment insurance and the business cycle: Should benefit entitlement duration react to the cycle? itMacroeconomic Dynamics, First View Article. http://dx.doi.org/10.1017/S1365100512000478.Google Scholar
Petrongolo, Barbara and Pissarides, Christopher A. (2001) Looking into the black box: A survey of the matching function. Journal of Economic Literature 39 (2), 390–431.Google Scholar
Pissarides, Christopher A. (2000) Equilibrium Unemployment Theory. Cambridge, MA: MIT Press.Google Scholar
Pissarides, Christopher A. (2009) The unemployment volatility puzzle: Is wage stickiness the answer? Econometrica 77 (5), 1339–1369.Google Scholar
Shimer, Robert (2005) The cyclical behavior of equilibrium unemployment and vacancies. American Economic Review 95 (1), 25–49.Google Scholar
Shimer, Robert (2012) Reassessing the ins and outs of unemployment. Review of Economic Dynamics 15 (2), 127–48.CrossRefGoogle Scholar
Silva, Jose I. and Toledo, Manuel (2009) Labor turnover costs and the cyclical behavior of vacancies and unemployment. Macroeconomic Dynamics 13 (S1), 76–96.Google Scholar
Smets, Frank and Wouters, Rafael (2007) Shocks and frictions in the US business cycle: A Bayesian DSGE approach. American Economic Review 97 (3), 586–606.Google Scholar
Stüber, Heiko (2012) Are Real Entry Wages Rigid over the Business Cycle? Empirical Evidence for Germany from 1977 to 2009. IAB discussion paper 6/2012.Google Scholar
Sveen, Tommy and Weinke, Lutz (2008) New Keynesian perspectives on labor market dynamics. Journal of Monetary Economics 55 (5), 921–930.Google Scholar