Search Frictions and Evolving Labour Market Dynamics

Michael Ellington, Christopher Martin and Bingsong Wang
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Michael Ellington: University of Liverpool

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

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. We find strong evidence against key predictions of the search frictions model, namely a large surge in vacancy creation in response to productivity shocks and a negative relationship between the volatilities of unemployment and wages. Our results question the amplification mechanism embedded in search frictions models and cast doubt on wage rigidity as a source of unemployment volatility.

Keywords: time-varying parameter model; real wages; search frictions (search for similar items in EconPapers)
JEL-codes: E23 E32 J23 J30 J64 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com, nep-cta, nep-eur, nep-law and nep-tre
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https://warwick.ac.uk/fac/soc/economics/research/w ... /twerp_1195_wang.pdf

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Journal Article: Search Frictions and Evolving Labour Market Dynamics (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1195

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