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Labor search and matching in macroeconomics

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  • Eran Yashiv
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    Abstract

    The labor search and matching model plays a growing role in macroeconomic analysis. This paper provides a critical, selective survey of the literature. Four fundamental questions are explored: how are unemployment, job vacancies, and employment determined as equilibrium phenomena? What determines worker flows and transition rates from one labor market state to another? How are wages determined? What role do labor market dynamics play in explaining business cycles and growth? The survey describes the basic model, reviews its theoretical extensions, and discusses its empirical applications in macroeconomics. The model has developed against the background of difficulties with the use of the neoclassical, frictionless model of the labor market in macroeconomics. Its success includes the modelling of labor market outcomes as equilibrium phenomena, the reasonable fit of the data, and — when inserted into business cycle models — improved performance of more general macroeconomic models. At the same time, there is evidence against the Nash solution used for wage setting and an active debate as to the ability of the model to account for some of the cyclical facts.

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    File URL: http://eprints.lse.ac.uk/19707/
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    Bibliographic Info

    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 19707.

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    Length: 66 pages
    Date of creation: Jun 2007
    Date of revision:
    Handle: RePEc:ehl:lserod:19707

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    Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
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    Web page: http://www.lse.ac.uk/
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    Related research

    Keywords: search; matching; macroeconomics; business cycles; worker flows; growth; policy;

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    References

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    35. Contini, Bruno & Revelli, Riccardo, 1997. "Gross flows vs. net flows in the labor market: What is there to be learned?," Labour Economics, Elsevier, vol. 4(3), pages 245-263, September.
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    Cited by:
    1. Hutter, Christian & Weber, Enzo, 2014. "Forecasting with a mismatch-enhanced labor market matching function," IAB Discussion Paper 201416, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    2. Stops, Michael, 2012. "Job matching across occupational labour markets," IAB Discussion Paper 201227, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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