Volatile hiring: uncertainty in search and matching models.

Area of Science:

• Economics
• Labor Economics
• Macroeconomics

Background:

• Search frictions in labor markets are nonlinear, impacting unemployment rates.
• Perceived uncertainty's effect on unemployment is complex and depends on model assumptions.

Purpose of the Study:

• To analyze how perceived uncertainty affects unemployment in search-and-matching models.
• To investigate the role of finite entrepreneurs and firm heterogeneity in this relationship.

Main Methods:

• Utilizing search-and-matching economic models.
• Comparing scenarios with free entry versus finite entrepreneurs and heterogeneous firms.

Main Results:

• Nonlinear search frictions increase unemployment with higher volatility.
• Perceived uncertainty alone does not raise unemployment without wage bargaining assumptions.
• Finite entrepreneurs and productivity heterogeneity amplify uncertainty's negative impact on job creation.

Conclusions:

• Model specifications, particularly regarding firm entry and productivity, are crucial for understanding uncertainty's effect on unemployment.
• Policy interventions should consider these factors to mitigate unemployment.