Search and unemployment Flashcards
Unemployment rate
U/Q
Participation rate
Q/N
Employment/population ratio
(Q-U) / N
Vacancy rate
A / (A + Q - U)
Beveridge curve
Unemployment rate and vacancy rate are negatively correlated
Welfare of unemployed worker increases with:
Unemployment benefit increasing
Frequency at which workers receive job offers
Welfare of employed worker decreases with:
the separation rate
Reservation wage
Wage at which unemployed worker is just indifferent between accepting and declining a job offer.
Determining unemployment rate in the search model in words (one period model)
Separation rate * employment rate = Unemployment rate * frequency at which wage offer arrives * fraction of workers receiving a job offer
Determining unemployment rate in the search model equation (one period model)
s(1-U) = UpH(W*)
Increase in unemployment benefits (B) (one period model)
Raises w* and Unemployment
Increase in job offer rate (p)
Raises reservation wage, lowers unemployment
Matching equation
M = e*m(Q,A)
The payoff of staying at home equals the payoff from a match. this depends on…
Unemployment benefit
Labour market tightness
Difference between market wage and the Unemployment benefit
In equilibrium, what must k equal
expected payoff for the firm from posting the vacancy
HH surplus
w - b
Firms surplus
z - w
Total surplus
z - b
Workers share of surplus equation
w = az + (1-a)b
Increase in the unemployment benefit (two period model)
Increases the wage.
Posting vacancies therefore becomes less attractive.
Labour market tightness falls
There are two offsetting factors. Higher wage means more attractive to work. Searching for work is less attractive.
Q may rise or fall depending on which is greater.
Unemployment rises and vacancies posted falls.
Increase in productivity
Increases wage as worker gets same share of larger pie.
Posting vacancies is more attractive due to higher profits, therefore labour market tightness rises.
Unemployment falls
Output rises
Vacancies posted rises
Decrease in matching efficiency
Chances of finding a worker are lower.
Therefore labour market tightness falls
Searching is less attractive so chance of finding a job are lower.
Wages remain the same.
Unemployment rises
Output falls
Vacancy rate stays the same
