Working Paper: CEPR ID: DP2053
Authors: Christopher Pissarides; Dale Mortensen
Abstract: This paper surveys recent work in equilibrium models of labor markets characterized by search and recruitment frictions and by the need to reallocate workers across productive activities. The duration of unemployment and jobs and wage determination are treated as endogenous outcomes of job creation and job destruction decisions made by workers and firms. The solutions studied are dynamic stochastic equilibria in the sense that time and uncertainty are explicitly modeled, expectations are rational, private gains from trade are exploited and the actions taken by all agents are mutually consistent. A number of alternative wage determination mechanisms are explored, including the frequently studied non-cooperative wage bargaining and wage posting by firms. We use the framework to study the influence of alternative labor market institutions and policies on wages and unemployment.
Keywords: search; matching; unemployment; wage posting; vacancies; job creation; job destruction; hiring subsidies; wage subsidies; employment protection legislation
JEL Codes: D58; E24; J31; J41; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unemployment insurance (J65) | Unemployment rates (J64) |
| Unemployment insurance (J65) | Duration effect (C41) |
| Unemployment insurance (J65) | Job creation effect (J23) |
| Hiring subsidies (J68) | Unemployment (J64) |
| Hiring subsidies (J68) | Job terminations (J63) |
| Employment protection legislation (K31) | Unemployment (J64) |
| Aggregate income (E10) | Unemployment rates (J64) |