The Two - Sided Search Model Flashcards
In the ‘two-sided search model’, what are the effects of increasing the unemployment benefit?
An increase in the unemployment benefit, makes the unemployed worker better off; thus decreasing the incentive for firms to post job vacancies. The lack of job vacancies posted, entails that finding a job is less attractive to the unemployed. As a result the market tightness decreases - with j1 falling to j2. However, an increased unemployment benefit is met with an increased reservation wage; meaning the quantity of labour supply can both rise or fall due to contrasting incentives.
In the ‘two-sided search model’, what are the effects of an increase in matching efficiency.
An increase in matching efficiency shifts the eM curve upwards from eM1 to eM2. As a result of the decreased unemployment, the labour market tightens and j1 shifts to rightwards to j2. The decreased unemployment also insinuates that there will be an increase to the quantity supply of labour - with Q1 shifting upwards to Q2; meaning the productivity curve will then shift upwards from P1 to P2.
What happens to the labour market as unemployment falls?
The labour market tightens, as there is less vacancies available to the unemployed worker.
In the ‘two-sided search model’, what are the effects of an increase to productivity.
An increase to productivity must be a direct consequence of an increase to the labour force - thus decreasing unemployment and making the labour market tighter, shown by an increase to j1 to j2. This increased productivity also insinuates that firms have experienced a rise in profits, meaning that they can increase the wage (w) of workers. This increased profit also makes posting vacancies more attractive as firms have surplus profits - solidifying the idea of the labour market tightening.
In the ‘two-sided search model’, what are the effects of a decrease in matching efficiency.
eM1 shifts downwards to eM2, this insinuates the ability for a Worker to find an available vacancy And a firm to find a worker falls, Meaning both Q and j decrease. As A result of this, Unemployment (U) Increases, Output (Y) falls - due to The lack of labour force, meaning Productivity (P) falls.
What is a direct consequence of a match?
Aggregate output thus GDP will increase as an increased labour force leads to greater productivity.
How do you calculate the participation rate?
Labour Force / Working Age Population (Q / N)
In the two-sided search model, the number of firms is
Endogenous
What happens to unemployment if there is a decrease to the unemployment benefit?
Unemployment will decrease. This is due to the decrease in the unemployment benefit acting as an incentive for the unemployed to find work?
The matching function captures the difficulties in
Matching heterogeneous firms with heterogeneous workers. It also helps to capture that it is costly and time-consuming to get firms and workers together to produce output.
An unemployed worker will only accept the job offer if
The reservation wage is greater than the unemployment benefits.
Labour market tightness in the two-sided search model is defined by
The number of firms divided by the number of consumers searching for work. The more unemployed workers searching for work, the tighter the labour market gets. Almost measures its’ concentration.
