Search, Shirking and Labor Market Volatility

Christopher Martin, Bingsong Wang

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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.
Original languageEnglish
Article number103243
JournalJournal of Macroeconomics
Early online date29 Aug 2020
Publication statusPublished - Dec 2020


  • Search frictions
  • Shirking
  • Unemployment volatility puzzle

ASJC Scopus subject areas

  • Economics and Econometrics


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