Member countries of the European Monetary Union (EMU) initiated wide-ranging labor market reforms in the last decade. This process is ongoing as countries that are faced with serious labor market imbalances perceive reforms as the fastest way to restore competitiveness within a currency union....

Standard macroeconomic models underpredict the volatility of unemployment fluctuations. A common solution is to assume wages are rigid. We explore whether this explanation is consistent with the data. We show that the wage of newly hired workers, unlike the aggregate wage, is volatile and...

In this paper we use information on the cyclical variation of labor market participation to learn about the aggregate labor supply elasticity. For this purpose, we extend the standard labor market matching model to allow for endogenous participation. A model that is calibrated to replicate the...

This paper presents a theory explaining the labor market matching process through microeconomic incentives. There are heterogeneous variations in the characteristics of workers and jobs, and firms face adjustment costs in responding to these variations. Matches and separations are described...

Existing models of equilibrium unemployment with endogenous labor market participation are complex, generate procyclical unemployment rates and cannot match unemployment variability relative to GDP. We embed endogenous participation in a simple, tractable job market matching model, show...

Shimer (2005a) argues that the Mortensen-Pissarides equilibrium search model of unemployment explains only about 10% of the response in the job-finding rate to an aggregate productivity shock. Some of the recent papers inspired by his critique are reviewed and commented on here. Specifically, we...

The labor search and matching model plays a growing role in macroeconomic analysis. This paper provides a critical, selective survey of the literature. Four fundamental questions are explored: how are unemployment, job vacancies, and employment determined as equilibrium phenomena? What...

The Beveridge curve depicts a negative relationship between unemployed workers and job vacancies, a robust finding across countries. The position of the economy on the curve gives an idea as to the state of the labour market. The modern underlying theory is the search and matching model, with...

This paper studies the cyclical dynamics of Mortensen and Pissarides' (1994) model of job creation and destruction when workers' effort is not perfectly observable, as in Shapiro and Stiglitz (1984). An occasionally-binding no-shirking constraint truncates the real wage distribution from below,...

The persistence of U.S. unemployment has risen with each of the last three recessions, raising the specter that future U.S. recessions might look more like the Eurosclerosis experience of the 1980s than traditional V-shaped recoveries of the past. In this paper, we revisit possible explanations...