Mismatch *

This paper develops a dynamic model of mismatch. Workers and jobs are randomly assigned to labor markets. Each labor market clears at each instant but some have more workers than jobs, hence unemployment, and some have more jobs than workers, hence vacancies. As workers and jobs move between labor markets, some unemployed workers find vacant jobs and some employed workers lose or leave their job and become unemployed. The model is quantitatively consistent with the business cycle frequency correlation between unemployment, job vacancies, and the rate at which unemployed workers find jobs and explains much of the cyclical volatility of these variables. The model can also address a variety of labor market phenomena, including cyclicality in the separation rate and the job-to-job transition rate and duration dependence in the job finding rate. The results are robust to having some non-random mobility.