Matching and Unemployment Dynamics in a Model of Competition Between Employed and Unemployed Job Searchers

This paper considers the dynamics of the labour market from a matching perspective, but allows for job search by the employed. In particular, the endogeneity of employed job search is shown to be important and significantly alters the nature of the labour market dynamics implied by the model. We discuss implications for transition rates into jobs and optimally chosen search intensity. We show that empirical estimates of matching functions need to be reinterpreted under this assumption, and show the interrelationship between the labour market flows and job creation and destruction to be rich and complex.