Search models Flashcards
Basic optimality condition search models
There’s a reservation wage in which the worker is indifferent between being unemployed and continuing searching
In the simple framework consumers become more picky when:
- There’s an increment of c
- There’s a mean preserving spread
Mean preserving spread
Value function in the continuous time version
Expression for unemployment rate, discrete time
Expression of unemployment, continuous time
Matching models basic idea
- Labor market is a decentralized adtivity and finding jobs and filling vacancies is costly to firms and workers
- Matching function captures frictions, once a vacancy is posted there is nothing a firm can do to attract workes.
- m(uL,vL) is
- Increasing in both arguments
- concave
- CRS
Market tightness
theta=v/u
Rate at which vacant jobs are filled
Job finding rate (matching)
Beveridge curve
- The only way that the job finding rate is high is that the unemployment rate is low
- Lambdda is the rate at which jobs are destroyed
Value functions J, V
Job creation condition
Value function for the worker problem
Wage condition derivation
Wages are determined by Nash Bargaining. Beta is the weight of the worker in the bargaining
Wage curve
Equilibrium matchiing model
The equilibrium is defined by three equation:
- Beveridge curve
- Job creation condition
- Wage curve
For efficiency in the competitive market allocation we requiere that beta=elasticity of m with respect to unemployment rate
Value functions in stochastic case
Free entry condition, stochastic case
Pissarides JD condition
Pissarides, JC condition
Potential benefit of the job = cost of the creation of the vacancy
Beveridge curve
