We show how on-the-job search and the propagation of shocks to the economy are intricately linked. Rising search by employed workers in a boom amplifies the incentives of firms to post vacancies. In turn, more vacancies increases job search. By keeping job creation costs low for firms,...

I specify a simple search and matching model of the labor market and estimate it on unemployment and vacancy data for Hong Kong over the period 2000-2010 using Bayesian methods. The model fits the data remarkably well. The estimation shows that the main driver of fluctuations in the labor market...