A Stock-Flow Theory of Unemployment with Endogenous Match Formation

William Hawkins and Carlos Carrillo-Tudela

No 1542, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We develop a tractable equilibrium model of stock-flow matching in the labor market. The economy consists of many labor markets, and workers and jobs continually flow into each labor market. Within a labor market, potential worker-job matches differ in quality. Accordingly, a worker newly arrived in a labor market may not find any acceptable matches; if so, she becomes part of the stock of unemployed workers and must wait for the arrival of a new vacancy in the flow which offers her a sufficiently high quality match. When labor market conditions change, the set of acceptable matches changes in response, a feature not allowed for in previous work on stock-flow matching. Our model is consistent with several stylized facts about the labor market, such as the importance of flows, as well as stocks, for matching rates, as well as with duration dependence in unemployment.

Date: 2016
New Economics Papers: this item is included in nep-dge
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