DP3044 A Discrete-Time Stochastic Model of Job Matching
|Author(s):||Anthony A. Smith Jr, Yves Zenou|
|Publication Date:||November 2001|
|Keyword(s):||large population approximation, matching function, optimal search intensity|
|JEL(s):||D83, J41, J61|
|Programme Areas:||Labour Economics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3044|
In this Paper, an explicit micro scenario is developed which yields a well-defined aggregate job-matching function. In particular, a stochastic model of job-matching behaviour is constructed in which the system steady state is shown to be approximated by an exponential-type matching function, as the population becomes large. This steady-state approximation is first derived for fixed levels of both wages and search intensities, where it is shown (without using a free-entry condition) that there exists a unique equilibrium. It is then shown that if job searchers are allowed to choose their search intensities optimally, then this model is again consistent with a unique steady state. Finally, the assumption of a fixed wage is relaxed, and an optimal ‘offer wage’ is derived for employers.