The separation rate cannot be exogenous

Abstract

Many articles that used the matching frame model considered the separation rate as an exogenous variable and concentrated on the matching process. This assumption is inconsistent with the findings of many empirical studies, which indicate that business cycles are driven primarily by changes in the separation rate.

This study demonstrates that, within the matching frame model, given uncertain productivity of newly employed workers the separation rate cannot be constant. Any change in the asset value of occupied jobs will lead to a change of the separation rate.