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Federal Reserve Bank of Dallas
Working Papers
The labor wedge as a matching friction
Anton A. Cheremukhin
Paulina Restrepo-Echavarria
Abstract

The labor wedge accounts for a large fraction of business cycle fluctuations. This paper uses a search and matching model to decompose the labor wedge into three classes of labor market frictions and evaluate their role. We find that frictions to job destruction and bargaining commonly considered in the search literature are not helpful in explaining the labor wedge. We also identify an asymmetric effect of separation, bargaining and matching frictions on unemployment, as well as a potential solution to Shimer's puzzle.


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Anton A. Cheremukhin & Paulina Restrepo-Echavarria, The labor wedge as a matching friction, Federal Reserve Bank of Dallas, Working Papers 1004, 2010.
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Note: Published as: Cheremukhin, Anton A. and Paulina Restrepo-Echabarria (2014), "The Labor Wedge as a Matching Friction," European Economic Review 68: 71-92.
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Subject headings:
Keywords: Business cycles - Econometric models; Labor supply; Unemployment; Labor turnover
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