Faculty of Economics and Business Administration Publications Database

Variable Search Intensity with Coordination Unemployment

Volume: 10
Pages: 1 - 33
Month: October
Link External Source: Online Version
Year: 2010
Keywords: Matching function; Coordination frictions; Unemployment

This paper analyzes an urn-ball matching model in which workers decide how intensively they sample job openings and apply at a stochastic number of suitable vacancies. The model allows for tractable equilibrium characterization with a continuous search intensity margin. Equilibrium is not constrained efficient; entry is excessive, search intensity can be too high or too low, and an inefficient discouraged-worker effect among homogenous workers emerges under adverse labor market conditions. Unlike existing coordination-friction economies with fixed search intensity, the model can account for the empirical relation between the job-finding rate and the vacancy-unemployment ratio, provided that search costs are small and that search intensity is sufficiently procyclical.