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Mismatch
Robert Shimer
American Economic Review. Aug 2007, Vol. 97, No. 4: Pages 1074-1101

Mismatch

Robert Shimer1

1Department of Economics, University of Chicago, 1126 East 59th Street, Chicago IL 60637.

Abstract

This paper develops a dynamic model of mismatch. Workers and jobs are randomly allocated to labor markets. Each market clears, but some have excess (unemployed) workers and some have excess (vacant) jobs. As workers and jobs switch markets, unemployed workers find vacancies and employed workers become unemployed. The model is quantitatively consistent with the business cycle frequency comovement of unemployment, vacancies, and the job finding rate and explains much of these variables' volatility. It can also address cyclicality in the separation rate into unemployment and duration dependence in the job finding rate. The results are robust to some nonrandom mobility. (JEL E24, J41, J63, J64)