Wednesday, 23 May 2012

Jobs in a recession

an article by Pascal Michaillat (CEPCP365) published in CentrePiece - The Magazine for Economic Performance (May 2012)

This article is based on a paper that models unemployment as the result of matching frictions and job rationing.

Job rationing is a shortage of jobs arising naturally in an economic equilibrium from the combination of some wage rigidity and diminishing marginal returns to labor. During recessions, job rationing is acute, driving the rise in unemployment, whereas matching frictions contribute little to unemployment.

Intuitively, in recessions jobs are lacking, the labor market is slack, recruiting is easy and inexpensive, so matching frictions do not matter much. In a calibrated model, cyclical fluctuations in the composition of unemployment are quantitatively large.

Full article (PDF 5pp)

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