Search,shirking and labor market volatility |
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| Institution: | 1. Department of Economics, University of Bath, Bath BA2 7AY UK;2. Department of Economics, University of Warwick, Coventry CV4 7AL, UK;1. Lehigh University and DePauw University, 621 Taylor Street, Bethlehem, PA United States;2. Lehigh University, 621 Taylor Street, Bethlehem, PA United States;3. Department of Economics, The University of Texas at Dallas, 800 W. Campbell Rd GR 31, Richardson, TX 75080, United States |
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| Abstract: | This paper proposes a modified version of the standard search and matching model of the labour market that includes a shirking mechanism. We show that our model delivers a close match to the simulated volatilities, correlations and autocorrelations of unemployment, vacancies, labour market tightness and the job finding rate with values observed in US data. In doing so, it outperforms prominent alternative models. Our model also has novel policy implications for the impact of income taxes, subsidies on hiring and employment taxes on unemployment and its volatility. |
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