The Unemployment Volatility Puzzle: The Role of Matching Costs Revisited

José Ignacio Silva and Manuel Toledo

MPRA Paper from University Library of Munich, Germany

Abstract: Recently, Pissarides (2008) has argued that the standard search model with sunk fixed matching costs increases unemployment volatility without introducing an unrealistic wage response in new matches. We revise the role of matching costs and show that when these costs are not sunk and, therefore, can be partially passed on to new hired workers in the form of lower wages, the amplication mechanism of fixed matching costs is considerably reduced and wages in new hired positions become more sensitive to productivity shocks.

Keywords: unemployment volatility puzzle; search and matching; matching costs (search for similar items in EconPapers)
JEL-codes: E32 J32 J64 (search for similar items in EconPapers)
Date: 2009-05-25, Revised 2009-10-08
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Journal Article: THE UNEMPLOYMENT VOLATILITY PUZZLE: THE ROLE OF MATCHING COSTS REVISITED (2013)
Working Paper: The Unemployment Volatility Puzzle: The Role of Matching Costs Revisited (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:17719

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