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Responses of Unemployment to Productivity Changes for a General Matching Technology

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  • Rich Ryan

Abstract

Workers separate from jobs, search for jobs, accept jobs, and fund consumption with their wages. Firms recruit workers to fill vacancies. Search frictions prevent firms from instantly hiring available workers. Unemployment persists. These features are described by the Diamond-Mortensen-Pissarides modeling framework. In this class of models, how unemployment responds to productivity changes depends on resources that can be allocated to job creation. Yet, this characterization has been made when matching is parameterized by a Cobb-Douglas technology. For a canonical DMP model, I (1) demonstrate that a unique steady-state equilibrium will exist as long as the initial vacancy yields a positive surplus; (2) characterize responses of unemployment to productivity changes for a general matching technology; and (3) show how a matching technology that is not Cobb-Douglas implies unemployment responds more to productivity changes, which is independent of resources available for job creation, a feature that will be of interest to business-cycle researchers.

Suggested Citation

  • Rich Ryan, 2023. "Responses of Unemployment to Productivity Changes for a General Matching Technology," Papers 2307.05843, arXiv.org, revised Nov 2023.
    • Handle: RePEc:arx:papers:2307.05843
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    References listed on IDEAS

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    1. Lars Ljungqvist & Thomas J. Sargent, 2017. "The Fundamental Surplus," American Economic Review, American Economic Association, vol. 107(9), pages 2630-2665, September.
    2. Mehrab Kiarsi, 2020. "The Fundamental Surplus or the Fundamentality of Vacancy Posting Costs?," Economics Bulletin, AccessEcon, vol. 40(2), pages 1011-1016.
    3. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    4. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-690, September.
    5. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
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    Cited by:

    1. Rich Ryan, 2024. "Unemployment volatility: When workers pay costs upon accepting jobs," International Journal of Economic Theory, The International Society for Economic Theory, vol. 20(3), pages 303-333, September.

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