Abstract: We show that equilibrium matching models imply that standard estimates of the matching function elasticities are exposed to an endogeneity bias, which arises from the search behavior of agents on either side of the market. We offer an estimation method which, under certain structural assumptions about the process driving shocks to matching efficiency, is immune from that bias. Application of our method to the estimation of a basic version of the matching function using aggregate U.S. data from the Job Openings and Labor Turnover Survey (JOLTS) suggests that the bias can be quantitatively important.

Abstract: We develop and estimate an equilibrium job search model of worker careers, allowing for human capital accumulation, employer heterogeneity and individual-level shocks. Monthly wage growth is decomposed into the contributions of human capital and job search, within and between jobs. Human capital accumulation is found to be the most important source of wage growth in early phases of workers' careers, but is soon surpassed by search-induced wage growth. Conventional measures of the returns to tenure hide substantial heterogeneity between different workers in the same firm and between similar workers in different firms.

Abstract: We demonstrate the existence of periodic nonstationary equilibria with self-generating cycles in a simple model of random search. Our results provide a theory of synchronized sales based on product market search by heterogeneous consumers. That is, our model explains how it can be optimal for all sellers to follow a repeated pattern of posting a high price for several periods and then posting a low price for one period.

Abstract: We document a strong negative correlation, at business cycle frequencies, between the net job creation rate of large firms or establishments and the level of aggregate unemployment, much stronger than for small employers. After detrending, the differential growth rate of employment between initially large and small firms has an unconditional correlation of -.5 with the unemployment rate, and varies by about 5% over the business cycle. We employ a variety of measures of relative employment growth and methodologies to circumvent two statistical fallacies, the Regression and Reclassification biases, that can affect our results. We exploit several (partly novel) datasets from the US, Denmark, and France, both repeated cross-sections and job flows with employer longitudinal information, spanning the last four decades and several business cycles. Our main fact is robust to different treatments of entry and exit of employers, and occurs mostly within, not across, US sectors and states. We discuss implications for theories of factor demand.

Abstract: We study equilibrium wage and employment dynamics in a class of search models where firms post wage contracts, workers search randomly for such contracts both on and off the job, while the economy is subject to aggregate shocks. Our exercise provides the first dynamic stochastic general equilibrium analysis of a popular class of search models, drawing in part from the literature on recursive contracts under moral hazard. Firms offer and commit to (Markov) contracts, which specify a wage contingent on all payoff-relevant states, but must pay equally all of their workers, who have limited commitment and are free to quit at any time. We find sufficient conditions for the existence and uniqueness of a stochastic search equilibrium in such contracts, which is Rank Preserving [RP]: larger and more productive firms offer a larger value to their workers in all states of the world. On the RP equilibrium path turnover is always efficient as workers always move from less to more productive firms, and the stochastic dynamics of firm size provide an intuitive explanation for the empirical finding that large employers have more cyclical job creation (Moscarini and Postel-Vinay, 2011). Finally, computation of RP equilibrium contracts is tractable.

Abstract: Job-to-job turnover provides a way for employers to escape statutory firing costs, as unprofitable workers may willfully quit their job on receiving an outside offer, thus sparing their incumbent employer the firing costs. Furthermore, employers can induce their unprofitable workers to accept outside job offers that they would otherwise reject by offering voluntary severance packages, which are less costly than the full statutory firing cost. We formalize those mechanisms within an extension of the Diamond-Mortensen-Pissarides (DMP) matching model that allows for employed job search and negotiation over severance packages. We find that, while essentially preserving most standard qualitative predictions of the DMP model without employed job search, our model explains why higher firing costs intensify job-to-job turnover at the expense of transitions out of unemployment. We further find that allowing for on-the-job search markedly changes the quantitative predictions of the DMP model regarding the impact of firing costs on unemployment and employment flows: ignoring on-the-job search leads one to strongly underestimate the negative impact of firing costs on unemployment.