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The Cyclicality of Search Intensity in a Competitive Search Model

Paul Gomme () and Damba Lkhagvasuren

No 13002, Working Papers from Concordia University, Department of Economics

Abstract: Shimer's puzzle is that the textbook Diamond-Mortensen-Pissarides model exhibits fluctuations in labor market variables that are an order of magnitude too small. Introducing search effort of the unemployed brings the model's predictions for these fluctuations very close to those seen in the data. The search cost function and the matching technology are intimately related and thus should be estimated simultaneously. Ignoring worker search effort leads to a large upward bias in the elasticity of matches with respect to vacancies. Evidence in support of the model's prediction of procyclical search effort is presented.

Keywords: Variable Search Effort; Educational Differences in Unemployment Volatility; Endogenous Matching Technology; Time Use; Wage Posting; Competitive Search (search for similar items in EconPapers)
JEL-codes: E24 E32 J63 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
Date: 2013-09, Revised 2013-09
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http://paulgomme.github.io/search-cycle-2013-09-12.pdf (application/pdf)

Related works:
Working Paper: The Cyclicality of Search Intensity in a Competitive Search Model (2011) Downloads
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