We present a picture of the labor market, one with large flows of jobs and workers,
and matching. We develop a consistent approach to the interaction among those flows
and the stocks of unemployed workers and vacant jobs, and to the determination of
wages. We estimate the matching function, using both aggregate data and data from
manufacturing and find evidence of a stable matching process in the data. We examine
the joint movements in unemployment, vacancies and wages -the Beveridge and Phillips
curve relations- in the light of our model. We conclude that aggregate activity shocks
rather than reallocation shocks dominate the movement of unemployment.
*Published:
Growth/Productivity/Unemployment, edited by Peter Diamond, pp. 159-201. Cambridge, MA: MIT Press, 1990.
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