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...

This paper shows that the matching function and the Beveridge curve in the United States exhibit strong nonlinearities over the business cycle. These patterns can be replicated by enhancing a search and matching model with idiosyncratic productivity shocks for new contacts. Large negative...

This paper shows analytically and numerically that there are two ways of generating an observationally equivalent comovement between matches, unemployment, and vacancies in dynamic labor market models: either by assuming a standard Cobb-Douglas contact function or by combining a degenerate...

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...

We consider a theoretical model in which unions not only take the outside option into account, but also base their wage-setting decisions on an internal reference, called the fairness reference. Wage and employment outcomes and the shape of the aggregate wage-setting curve depend on the weight...

In dynamic wage bargaining models it is usually assumed that individual unemployment benefits are a fraction of the average wage level. In most countries, however, unemployment benefits are instead tied to the previous level of individually earned wages. We show how the analysis has to be...

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...

We reassess the role of vacancies in a Diamond-Mortensen-Pissarides style search and matching model. In the absence of free entry long lived vacancies and endogenous separations give rise to a vacancy depletion channel which we identify via joint unemployment and vacancy dynamics. We show...

Using the new AWFP dataset that covers all German establishments, we document a substantial cross-sectional heterogeneity of establishments' average real wages over the business cycle. While the median establishments' real wages are procyclical, there is a large fraction of establishments with...

In this paper, we analyze the connection between value added, wages, and labor market flows at the establishment level. We develop a simple model to illustrate the expected comovement of these variables. For the empirical analysis, we link the new German Administrative Wage and Labor Market Flow...