Efficient search on the job and the business cycle

Guido Menzio, Shouyong Shi

    Research output: Contribution to journalArticlepeer-review


    The paper develops a model of directed search on the job in which transitions of workers between unemployment and employment and across employers are driven by heterogeneity in the quality of firmworker matches. The equilibrium is such that the agents' value and policy functions are independent of the endogenous distribution of workers across employment states. Hence, the model can be solved outside of the steady state and used to measure the effect of cyclical productivity shocks on the labor market. Productivity shocks are found to generate large fluctuations in workers' transitions, unemployment, and vacancies when matches are experience goods, but not when matches are inspection goods.

    Original languageEnglish (US)
    Pages (from-to)468-510
    Number of pages43
    JournalJournal of Political Economy
    Issue number3
    StatePublished - Jun 2011

    ASJC Scopus subject areas

    • Economics and Econometrics


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