Working Paper: CEPR ID: DP3044
Authors: Tony E. Smith; Yves Zenou
Abstract: In this Paper, an explicit micro scenario is developed which yields a well-defined aggregate job-matching function. In particular, a stochastic model of job-matching behaviour is constructed in which the system steady state is shown to be approximated by an exponential-type matching function, as the population becomes large. This steady-state approximation is first derived for fixed levels of both wages and search intensities, where it is shown (without using a free-entry condition) that there exists a unique equilibrium. It is then shown that if job searchers are allowed to choose their search intensities optimally, then this model is again consistent with a unique steady state. Finally, the assumption of a fixed wage is relaxed, and an optimal ?offer wage? is derived for employers.
Keywords: large population approximation; matching function; optimal search intensity
JEL Codes: D83; J41; J61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| population size (J11) | job filling rates (J68) |
| marginal benefit of reduced unemployment duration = marginal cost of leisure lost (J64) | search intensity (D83) |
| optimal wage level (J31) | search intensity (D83) |
| search intensity (D83) | job filling rates (J68) |