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Federal Reserve Bank of Richmond
Working Paper
The cyclicality of the user cost of labor with search and matching
Marianna Kudlyak

The user cost of labor captures the hiring wage and the expected effect of the economic conditions at the time of hiring on future wages. In search and matching models, I show that it is the user cost and not the wage that is weighted against the worker's marginal product at the time of hiring; so, the user cost is the allocational variable. I construct its measure in the data and estimate that it is more procyclical than average wages or wages of newly hired workers. I show that the textbook search and matching model cannot simultaneously generate the empirical elasticities of the vacancy-unemployment ratio and of the user cost of labor, irrespectively of the surplus division rule.

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Marianna Kudlyak, The cyclicality of the user cost of labor with search and matching, Federal Reserve Bank of Richmond, Working Paper 09-12, 2011.
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Keywords: Business cycles ; Labor market
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