Working Paper: CEPR ID: DP5363
Authors: Eran Yashiv
Abstract: Does the search and matching model fit aggregate US labour market data? While the model has become an important tool of macroeconomic analysis, recent literature pointed to some significant failures in accounting for the data. This paper aims to answer two questions: (i) Does the model fit the data, and, if so, on what dimensions? (ii) Does the data 'fit' the model, i.e. what are the data which are relevant to be explained by the model? The analysis shows that the model fits certain specifications of the data on many dimensions, though not on all. This includes capturing the high persistence and high volatility of most of the key variables, the negative co-variation of unemployment and vacancies, and the behaviour of the worker job finding rate. A key role in this fit is played by the convexity of hiring costs and the stochastic properties of the separation rate. The latter is a major component of the rate discounting the future value of the job-worker match. The paper offers a workable, empirically-grounded version of the model for the analysis of aggregate US labour market dynamics.
Keywords: business cycles; labour market flows; matching; search; US labour market; vacancies
JEL Codes: E24; E32; J32; J63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| convexity of hiring costs (J32) | future value of job-worker matches (J29) |
| stochastic properties of separation rate (C69) | future value of job-worker matches (J29) |
| negative covariation of unemployment and vacancies (J69) | dynamics of unemployment and vacancies (J69) |
| worker job finding rate (J68) | dynamics of unemployment and vacancies (J69) |
| search and matching model (J69) | labor market dynamics (J29) |