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Search, Shirking and Labor Market Volatility

Christopher Martin () and Bingsong Wang ()

No 56/16, Department of Economics Working Papers from University of Bath, Department of Economics

Abstract: This paper proposes a modified version of the standard search and matching model of the labour market that combines a shirking mechanism with the assumption that firms post wages. We argue that a small shirking effect will generate a low rate of profit and lead to a low rate of vacancy creation, implying that the vacancy filling rate is high. Through this mechanism we show that our model delivers a close match of the simulated volatilities, correlations and autocorrelations of unemployment, vacancies, labour market tightness and the job finding rate with values observed in US data. In doing so, it outperforms prominent alternative models.

Date: 2016-10-24
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