Labor market institutions, via their effect on the wage structure, affect the investment decisions of firms in labor markets with frictions. This observation helps explain rising wage inequality in the US, but a relatively stable wage structure in Europe in the 1980s. These different trends are...

This paper shows, from the consumer’s budget constraint, that expected future labor income growth rates and the residuals of the cointegration relation among log consumption, log asset wealth and log current labor income (summarized by the variable cay of Lettau and Ludvigson (2001a)), should...

This paper develops a new framework for examining the distributional consequences of international trade that incorporates firm and worker heterogeneity, search and matching frictions in the labor market, and screening of workers by firms. Larger firms pay higher wages and exporters pay higher...

European regions have experienced a polarisation of their unemployment rates between 1986 and 1996, as regions with intermediate rates have been driven by changes in regional employment, only partly offset by labour force changes. Regions'' outcomes have closely followed those of neighbouring...

Theoretical predictions of the effect of TFP growth on employment are ambiguous, and depend on the extent to which new technology is embodied in new jobs. We estimate a model for employment, wages and investment with an annual panel for the United States, Japan and Europe and find that TFP...

This paper tests whether aggregate matching is consistent with unemployment being mainly due to search frictions or due to job queues. Using U.K. data and correcting for temporal aggregation bias, estimates of the random matching function are consistent with previous work in this field, but...

This paper derives optimal employment contracts when workers are risk averse and there are employment and unemployment risks. Without income insurance, consumption rises during employment and falls during unemployment. Optimal employment contracts offer severance compensation to smooth...

This article develops a model of unemployment fluctuations. The model keeps the architecture of the general-disequilibrium model of Barro and Grossman (1971) but takes a matching approach to the labor and product markets instead of a disequilibrium approach. On the product and labor markets,...

This paper emphasizes the two-way causality between the provision of unemployment insurance and the cultural transmission of work ethic. Values affect the size of the moral-hazard problem and, hence, the policy to be implemented. Conversely, when parents rationally choose how much effort to...

This paper is about the labour market consequences of creative destruction with on-the-job search. We consider a matching model in an economy with embodied technological progress and show that its dynamics are profoundly affected by allowing on-the-job search. We obtain that the elasticity of...