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A Stock-Flow Theory of Unemployment with Endogenous Match Formation

Author

Listed:
  • William Hawkins

    (Yeshiva University)

  • Carlos Carrillo-Tudela

    (Essex)

Abstract

We develop a tractable equilibrium model of stock-flow matching in the labor market. The economy consists of many labor markets, and workers and jobs continually flow into each labor market. Within a labor market, potential worker-job matches differ in quality. Accordingly, a worker newly arrived in a labor market may not find any acceptable matches; if so, she becomes part of the stock of unemployed workers and must wait for the arrival of a new vacancy in the flow which offers her a sufficiently high quality match. When labor market conditions change, the set of acceptable matches changes in response, a feature not allowed for in previous work on stock-flow matching. Our model is consistent with several stylized facts about the labor market, such as the importance of flows, as well as stocks, for matching rates, as well as with duration dependence in unemployment.

Suggested Citation

  • William Hawkins & Carlos Carrillo-Tudela, 2016. "A Stock-Flow Theory of Unemployment with Endogenous Match Formation," 2016 Meeting Papers 1542, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:1542
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    References listed on IDEAS

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    1. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage Bargaining with On-the-Job Search: Theory and Evidence," Econometrica, Econometric Society, vol. 74(2), pages 323-364, March.
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    3. Ay?egül ?ahin & Joseph Song & Giorgio Topa & Giovanni L. Violante, 2014. "Mismatch Unemployment," American Economic Review, American Economic Association, vol. 104(11), pages 3529-3564, November.
    4. Ricardo Lagos, 2000. "An Alternative Approach to Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 851-873, October.
    5. David Wiczer, 2013. "Long-term Unemployment: Attached and Mismatched?," 2013 Meeting Papers 1101, Society for Economic Dynamics.
    6. Melvyn G. Coles & Abhinay Muthoo, 1998. "Strategic Bargaining and Competitive Bidding in a Dynamic Market Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(2), pages 235-260.
    7. Curtis R. Taylor, 1995. "The Long Side of the Market and the Short End of the Stick: Bargaining Power and Price Formation in Buyers', Sellers', and Balanced Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 837-855.
    8. James Annable, 1984. "Analysis," Challenge, Taylor & Francis Journals, vol. 27(2), pages 59-61, May.
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    Cited by:

    1. Ehrenfried, Felix & Holzner, Christian, 2019. "Dynamics and endogeneity of firms’ recruitment behaviour," Labour Economics, Elsevier, vol. 57(C), pages 63-84.

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