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Empirical topics in search and matching models of the labour market

Nanton, Ashley 2014. Empirical topics in search and matching models of the labour market. PhD Thesis, Cardiff University.
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Abstract

Search and matching models such as those of Mortensen and Pissarides (1994) and Pissarides (2000) have come under criticism in recent years. Analysis of the model by Shimer (2005) and others has focussed in particular on the models’ inability to generate sufficient volatility in variables such as the unemployment and vacancies rates, and the vacancyunemployment ratio. Newer models have sought to ameliorate these empirical issues by changing the model – for example by adding wage rigidity or by amending the specification of the costs of search. In Chapters 3 and 4 of this thesis, we re-address some of these issues using the method of indirect inference. The method allows us to formally test the hypothesis that data was generated by a particular model under a given set of parameter values. It therefore offers a statistically founded replacement for the somewhat arbitrary moment-by-moment comparisons found in much of the existing literature. We apply the method to Shimer’s analysis of the Mortensen Pissarides model, and concur with his analysis that, under his chosen parameters, the model fails to fit the data. We also apply the method to the model used in Yashiv’s (2006) paper, which argues using moment comparisons that the standard model can be improved by adding convex search costs. In contrast, we find that the augmented model is rejected under formal indirect-inference tests. The aggregate search and matching literature has also generated an empirical debate about the relative importance of labour market flows, expressed in terms of the hazard rates of labour market transition faced by workers. Many studies decompose changes in steady-state unemployment in terms of the contributions of various hazard rates. This thesis also extends this literature so as to model the contributions of hazards for two distinct and contiguous geographical areas – those of Wales and the rest of the United Kingdom, using Labour-Force-Survey panel data. We find some evidence that in this regard, the UK hazards are weighted towards the hazards “out of” unemployment, whereas for Wales the hazards “into” and “out of” unemployment are of approximately equal importance. We also find however that the results are sensitive to whether or not the data are smoothed, and whether a steady-state is imposed.

Item Type: Thesis (PhD)
Status: Unpublished
Schools: Business (Including Economics)
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Funders: ESRC
Date of First Compliant Deposit: 30 March 2016
Last Modified: 10 Oct 2023 15:15
URI: https://orca.cardiff.ac.uk/id/eprint/59780

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