When workers send applications to vacancies they create a network. Frictions arise becauseworkers typically do not know where other workers apply to and firms do not know whichcandidates other firms consider. The first coordination friction affects network formation, whilethe second coordination...

Using a country-industry panel dataset (EUKLEMS) we uncover a robust empirical regularity,namely that high-risk innovative sectors are relatively smaller in countries with strictemployment protection legislation (EPL). To understand the mechanism, we develop a twosectormatching model where firms...