Volatile Hiring: Uncertainty in Search and Matching Models

Wouter J. Den Haan*, Lukas B. Freund*, Pontus Rendahl*

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

In search-and-matching models, the nonlinear nature of search frictions increases average unemployment rates during periods with higher volatility. These frictions are not, however, by themselves sufficient to raise unemployment following an increase in perceived uncertainty; though they may do so in conjunction with the common assumption of wages being determined by Nash bargaining. Importantly, option-value considerations play no role in the standard model with free entry. In contrast, when the mass of entrepreneurs is finite and there is heterogeneity in firm-specific productivity, a rise in perceived uncertainty robustly increases the option value of waiting and reduces job creation.
Original languageEnglish
JournalJournal of Monetary Economics
Number of pages18
ISSN0304-3932
DOIs
Publication statusPublished - 28 Jul 2021

Bibliographical note

Epub ahead of print. Published online: 28 July 2021.

Keywords

  • Uncertainty
  • Search frictions
  • Unemployment
  • Option value

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