Kiel Working Papers, Kiel Institute for World Economics
No 1636:
A Frictionless Model of Job Flows and the Beveridge Curve
Christopher Reicher
Abstract: The Diamond-Mortensen-Pissarides search and matching model
is the workhorse of labor macro, but it has difficulty in simultaneously
matching the cyclical behavior of job loss and vacancies when taken to the
data. By completely ignoring frictions in job creation and focusing instead
on firm-level heterogeneity, one can match the cyclical behavior of job
flows and vacancies relatively well. In particular, one can generate a
Beveridge Curve which looks much like the real Beveridge Curve, and one can
replicate the approximately equal contributions of job creation and
destruction to the cycle. Focusing on heterogeneity rather than on hiring
costs seems to give an improved picture of hiring activity over the
cycle
JEL-Codes: J61,; J21; (follow links to similar papers)
28 pages, July 2010
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