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Implications of Search Frictions: Matching Aggregate and Establishment-level Observations

Russell Cooper, John Haltiwanger and Jonathan Willis ()

No 13115, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies hours, employment, vacancies and unemployment at micro and macro levels. It is built around a set of facts concerning the variability of unemployment and vacancies in the aggregate and, at the establishment level, the distribution of net employment growth and the comovement of hours and employment growth. A search model with frictions in hiring and firing is used as a framework to understand these observations. Notable features of this search model include non-convex costs of posting vacancies, establishment level profitability shocks and a contracting framework that determines the response of hours and wages to shocks. The search friction creates an endogenous, cyclical adjustment cost. We specify and estimate the parameters of the search model using simulated method of moments to match establishment-level and aggregate observations. The estimated search model is able to capture both the aggregate and establishment-level facts.

JEL-codes: E24 J6 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
Date: 2007-05
Note: EFG
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