We develop a random search model with two-sided heterogeneity and match-specific productivity shocks to explain why high-productivity workers tend to work at high-productivity firms despite low-productivity workers gaining about as much from such matches. Our model has two key predictions: i)...

Main description: Labor Markets and Business Cycles integrates search and matching theory with the neoclassical growth model to better understand labor market outcomes. Robert Shimer shows analytically and quantitatively that rigid wages are important for explaining the volatile behavior of the...

Abstract This paper explores the efficiency of decentralized search behavior and matching patterns in a model with ex ante heterogeneity and a constant returns to scale search technology. We show that a linear tax or subsidy on search intensity decentralizes the social optimum. In the absence of...

We develop a dynamic equilibrium model of asset markets with adverse selection. There exists a unique equilibrium in which better quality assets trade at higher prices but with a lower price-dividend ratio in less liquid markets. Sellers of high-quality assets signal quality by accepting a lower...

Real wage rigidities cause jobless recoveries. Suppose that a one-time shock reduces the capital stock below trend. If wages are flexible, they decline and employment increases at the moment of the shock, before both revert back to normal levels as the economy grows back to trend. If wages are...

This paper explores price formation when sellers are privately informed both about their preferences and the quality of their asset. In equilibrium, sellers recognize that it will be harder to sell their asset at higher prices, while buyers recognize that they will get higher quality assets on...

We extend the concept of competitive search equilibrium to environments with private information, and in particular adverse selection. Principals (e.g. employers or agents who want to buy assets) post contracts, which we model as revelation mechanisms. Agents (e.g. workers, or asset holders)...

We study the optimal design of unemployment insurance for workers sampling job opportunities over time. We focus on the timing of benefits and the desirability of allowing workers to freely access a riskless asset. When workers have constant absolute risk aversion preferences, a very simple...

This paper studies the assignment of heterogeneous workers to heterogeneous jobs in the presence of coordination frictions. Firms offer human-capital-contingent wages, workers observe these and apply for a job. In a symmetric equilibrium, identical workers use identical mixed strategies in...