Volatile hiring: uncertainty in search and matching models

In search-and-matching models, the nonlinear nature of search frictions increases average unemployment rates during periods with higher volatility. These frictions are not, however, by themselves sufficient to raise unemployment following an increase in perceived uncertainty; though they may do so i...

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Bibliographic Details
Published inJournal of monetary economics Vol. 123; pp. 1 - 18
Main Authors Den Haan, Wouter J., Freund, Lukas B., Rendahl, Pontus
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.10.2021
North-Holland Pub. Co
Subjects
Option value
Search frictions
Uncertainty
Unemployment
Uncertainty
Search frictions
E32
Option value
E24
J64
Unemployment
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Summary:In search-and-matching models, the nonlinear nature of search frictions increases average unemployment rates during periods with higher volatility. These frictions are not, however, by themselves sufficient to raise unemployment following an increase in perceived uncertainty; though they may do so in conjunction with the common assumption of wages being determined by Nash bargaining. Importantly, option-value considerations play no role in the standard model with free entry. In contrast, when the mass of entrepreneurs is finite and there is heterogeneity in firm-specific productivity, a rise in perceived uncertainty robustly increases the option value of waiting and reduces job creation.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
content type line 23
ISSN:0304-3932
1873-1295
DOI:10.1016/j.jmoneco.2021.07.008