Author(s)
Guido Menzio, Shouyong Shi

We develop a general stochastic model of directed search on the job. Directed search allows us to focus on a Block Recursive Equilibrium (BRE) where agents' value functions, policy functions and market tightness do not depend on the distribution of workers over wages and unemployment. We formally prove existence of a BRE under various specifications of workers' preferences and contractual environments, including dynamic contracts and fixed-wage contracts. Solving a BRE is as easy as solving a representative agent model, in contrast to the analytical and computational difficulties in models of random search on the job.

Publication Type
Article
Journal
Journal of Economic Theory
Volume
145
Issue Number
4
Pages
1453-1494
JEL Codes
E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
E32: Business Fluctuations; Cycles
J64: Unemployment: Models, Duration, Incidence, and Job Search
Keywords
directed search
on-the-job search
heterogeneity
aggregate fluctuations