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UNDERSTANDING LABOUR MARKET FRICTIONS: AN ASSET PRICING APPROACH
Author(s) -
Basu Parantap
Publication year - 2009
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.2008.00295.x
Subject(s) - economics , boom , productivity , position (finance) , value (mathematics) , labour economics , asset (computer security) , beveridge curve , quality (philosophy) , capital (architecture) , capital asset pricing model , financial economics , unemployment , macroeconomics , finance , history , philosophy , unemployment rate , computer security , archaeology , epistemology , machine learning , environmental engineering , computer science , engineering
Labour market friction is viewed in terms of the market value of an employed worker as opposed to the position of the Beveridge curve. This market value of an installed worker, which I call Tobin's Q of a worker, is inversely proportional to the average quality of the match between employers and workers. Based on this measure, I find that the labour market friction rises during a period of productivity boom. This phenomenon is indirectly supported by the data where it is found that the relative value of a worker with respect to tangible capital shows a positive association with the total factor productivity. The model suggests that firms may be compromising the quality of a skill match during a period of tight labour market conditions.