Mismatch (screen version)
(print version)
This paper develops a dynamic model of
mismatch. Workers and jobs are randomly assigned to labor markets. Each labor
market clears at each instant but some have more workers than jobs, hence
unemployment, and some have more jobs than workers, hence vacancies. As workers
and jobs move between labor markets, some unemployed workers find vacant jobs
and some employed workers lose or leave their job and become unemployed. The model is quantitatively consistent with
the business cycle frequency correlation between unemployment, job vacancies,
and the rate at which unemployed workers find jobs and explains much of the
cyclical volatility of these variables. The model can also address a variety of
labor market phenomena, including cyclicality in the separation rate into
unemployment and the job-to-job transition rate and duration dependence in the
job finding rate. The results are robust
to having some non-random mobility.