Working Paper: NBER ID: w15901
Authors: Richard Rogerson; Robert Shimer
Abstract: This chapter assesses how models with search frictions have shaped our understanding of aggregate labor market outcomes in two contexts: business cycle fluctuations and long-run (trend) changes. We first consolidate data on aggregate labor market outcomes for a large set of OECD countries. We then ask how models with search improve our understanding of these data. Our results are mixed. Search models are useful for interpreting the behavior of some additional data series, but search frictions per se do not seem to improve our understanding of movements in total hours at either business cycle frequencies or in the long-run. Still, models with search seem promising as a framework for understanding how different wage setting processes affect aggregate labor market outcomes.
Keywords: search theory; labor market; business cycles; unemployment; wage setting
JEL Codes: E24; E32; J21; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| search frictions (F12) | understanding labor market dynamics (J20) |
| search frictions (F12) | reduced volatility in employment (J63) |
| search frictions (F12) | total hours worked (J22) |
| search frictions (F12) | understanding business cycle fluctuations (E32) |