Frictional and Non Frictional Unemployment in Models with Matching Frictions

This paper uses a model with a matching function in the labor market, where matches last for one period, to obtain the amount of frictional and non frictional (rationed/disequilibrium) unemployment for different standard wage-setting rules when there are matching frictions. We also compute the frictional and non frictional unemployment rate for two economies characterized by different labor market institutions, namely the Spanish and US economies. The empirical analysis takes into account two types of micro-foundations of the matching function: coordination failure and mismatch due to heterogeneity in the labor market. The empirical findings for Spain suggest that approximately half of all unemployment is due to job rationing and the other half to frictional and mismatch problems. However, the rationing unemployment rate for the US economy represents, two thirds of all unemployment on average, while frictional and mismatch problems account for only a third.