Kiel Working Papers, Kiel Institute for World Economics
No 1512:
An Incentive Theory of Matching
Alessio J. G. Brown, Christian Merkl and Dennis Snower
Abstract: This paper presents a theory explaining the labor market
matching process through microeconomic incentives. There are heterogeneous
variations in the characteristics of workers and jobs, and firms face
adjustment costs in responding to these variations. Matches and separations
are described through firms' job offer and firing decisions and workers'
job acceptance and quit decisions. This approach obviates the need for a
matching function. On this theoretical basis, we argue that the matching
function is vulnerable to the Lucas critique. Our calibrated model for the
U.S. economy can account for important empirical regularities that the
conventional matching model cannot
Keywords: Matching,incentives,adjustment costs, unemployment, employment, quits, firing, job offers, job acceptance; (follow links to similar papers)
JEL-Codes: E24,; E32,; J63,; J64; (follow links to similar papers)
28 pages, April 2009
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