The Labor Wedge as a Matching Friction

@inproceedings{CHEREMUKHIN2008TheLW,
  title={The Labor Wedge as a Matching Friction},
  author={ANTON A. CHEREMUKHIN and PAULINA RESTREPO ECHAVARRIA},
  year={2008}
}
  • ANTON A. CHEREMUKHIN, PAULINA RESTREPO ECHAVARRIA
  • Published 2008
Variations in the labor wedge account for a large fraction of business cycle uctuations. We provide an interpretation of the labor wedge from a searchtheoretic point of view and assess the importance of job creation and job destruction shocks for business cycles. We nd that the labor wedge is mainly driven by matching shocks. However, in a recession, separation shocks account for the initial increase in unemployment, while matching shocks are responsible for the slow recovery. Finally, allowing… CONTINUE READING
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