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Reconciling endogenous job destruction with labor market stylized facts: The role of hiring costs

Jérémy Rastouil

Economics Letters, 2018, vol. 171, issue C, 198-201

Abstract: This note considers a Real Business Cycle model with search and matching frictions as well as purely endogenous separations in line with the model of Mortensen and Pissarides (1994) in order to solve the Shimer (2005) puzzle. This puzzle shows the inconsistency of such a model to capture the high volatility of labor market variables (unemployment, vacancies) and cyclical property (Beveridge curve, job creation and destruction). Using hiring costs rather than vacancy posting cost in this setup allows to solve this puzzle.

Keywords: Labor markets; Business cycles; Firing cost; Hiring cost (search for similar items in EconPapers)
JEL-codes: E24 E32 J21 J63 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:ecolet:v:171:y:2018:i:c:p:198-201