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...

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...

This paper incorporates search and matching frictions in the labor market into a New Keynesian model. In contrast to the literature, the labor market activity takes place in the (Calvo-staggered) price-setting sector. Matching frictions lead price-setting firms to negotiate wage rates with their...

Recently, a number of authors have argued that the standard search model cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies, given shocks of a plausible magnitude. We use data on the cost of vacancy creation and cyclicality of wages to identify...

We extend the standard textbook search and matching model by introducing deep habits in consumption. The cyclical fluctuations of vacancies and unemployment in our model can replicate those observed in the US data, with labour market tightness being 20 times more volatile than consumption....

We use a novel approach to studying the heterogeneity in the job finding rates of the nonemployed by classifying the nonemployed by labor force status (LFS) histories, instead of using only one-month LFS. Job finding rates differ substantially across LFS histories: they are 25-30% among those...

Rising wage inequality in the U.S. and Britain (especially in the 1980s) and rising continental European unemployment (with rather stable wage inequality) have led to a popular view in the economics profession that these two phenomena are related to negative relative demand shocks against the...

Rising wage inequality in the U.S. and Britain (especially in the 1980s) and rising continental European unemployment (with rather stable wage inequality) have led to a popular view in the economics profession that these two phenomena are related to negative relative demand shocks against the...

In this paper, we present a matching model with adverse selection that explains why flows into and out of unemployment are much lower in Europe compared to North America, while employment-to-employment flows are similar in the two continents. In the model, firms use discretion in terms of whom...

In this paper, we present a matching model with adverse selection that explains why flows into and out of unemployment are much lower in Europe compared to North America, while employment-to-employment flows are similar in the two continents. In the model, firms use discretion in terms of whom...