Standard models of employment fluctuations cannot reconcile the unemployment rate's remarkable persistence with the high job-finding rates found in worker flows data. A matching model emphasizing high hazard rates among newly formed firm-worker matches can resolve this shortcoming. In the model, matches are experience goods; consequently, newly employed workers face higher hazard rates.Following a job loss, workers may experience several short-lived jobs before finding stable employment. At an aggregate level, an initial burst of job loss precipitates a steady flow of recurring job loss. A simulation shows that this recurring job loss can account for the fact that the unemployment rate remains elevated for as much as 4 or 5 years following an initial jump. Copyright The Review of Economic Studies Limited, 2004.

We develop a matching model to account for the fact that worker turnover in Europe is much less than in the United States, whereas job turnover is roughly the same. The model assumes that the quality of worker‐firm matches is both an inspection good and an experience good. Both parties have limited information at the time of meeting about the match’s quality, which is completely revealed only by engaging in production. Hiring practices play a key allocational role in this economy. We show how labor policies distort hiring practices and assess the consequences for labor market dynamics and welfare.