Search Frictions and Evolving Labour Market Dynamics
Chris Martin and
Bingsong Wang ()
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Michael Ellington: University of Liverpool
Chris Martin: University of Bath
The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics
This paper puts search frictions models under novel empirical scrutiny and tests their ability to match empirical observations. To capture changing dynamics we ﬁt an extended Bayesian time-varying parameter VAR to US labour market data from 1962–2016. We ﬁnd strong evidence against key predictions of the search frictions model, namely a large surge in vacancy creation in response to productivity shocks and a negative relationship between the volatilities of unemployment and wages. Our results question the ampliﬁcation mechanism embedded in search frictions models and cast doubt on wage rigidity as a source of unemployment volatility.
Keywords: time-varying parameter model; real wages; search frictions (search for similar items in EconPapers)
JEL-codes: E23 E32 J23 J30 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-cta, nep-eur, nep-law and nep-tre
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1195
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