Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/210730 
Year of Publication: 
2019
Series/Report no.: 
Staff Report No. 878
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
We provide an information-based theory of matching efficiency fluctuations. Rationally inattentive firms have limited capacity to process information and cannot perfectly identify suitable applicants. During recessions, higher losses from hiring unsuitable workers cause firms to be more selective in hiring. When firms cannot obtain sufficient information about applicants, they err on the side of caution and accept fewer applicants to minimize losses from hiring unsuitable workers. Pro-cyclical acceptance rates drive a wedge between meeting and hiring rates, explaining fluctuations in matching efficiency. Quantitatively, our model replicates the joint behavior of unemployment rates and matching efficiency observed since the Great Recession.
Subjects: 
rational inattention
hiring behavior
matching efficiency
composition of unemployed
JEL: 
D8
E32
J63
J64
Document Type: 
Working Paper

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