1 / 24

Lecture 2: Frictional unemployment

Lecture 2: Frictional unemployment. I. The matching function. Frictional unemployment. We have seen foundations for «  classical unemployment » Frictional unemployment arises from continuous reallocation of workers between jobs

Download Presentation

Lecture 2: Frictional unemployment

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Lecture 2: Frictional unemployment I. The matching function

  2. Frictional unemployment • We have seen foundations for «  classical unemployment » • Frictional unemployment arises from continuous reallocation of workers between jobs • In the models we have seen, unemployment would fall to zero absent the rigidities • We need to enrich these models

  3. Questions we want to ask • What fraction of average unemployment is frictional? • Does frictional unemployment play a useful social role? • If so, what is the efficient level of unemployment? • How is frictional unemployment affected by growth, creative destruction, etc…? • Does the frictional component fluctuate?

  4. The matching function • Costly process of allocation unemployed workers to vacant positions • The matching function is the production function for the flow of new hires • The inputs are: • The stock of unemployed workers looking for jobs • The stock of vacant jobs looking for workers

  5. Hirings per unit of time • It is assumed to have the properties of a production function: • Constant returns to scale • Increasing in its arguments • Concave

  6. The dynamics of unemployment

  7. The Beveridge curve v du/dt = 0 u

  8. Properties of the Beveridge Curbve • Steady state relationship between u and v • Downward sloping • Convex • The analysis can also be made in the (u,θ) plane where θ = v/u

  9. The Beveridge curve θ du/dt = 0 u

  10. Closing the model: labor demand

  11. Closing the model: posting vacancies

  12. The equilibrium value of θ

  13. The equilibrium trajectory: θ du/dt = 0 u

  14. Labor demand shocks • The θ falls when • c goes up • r goes up • φ goes up • y goes down • In steady state, this is associated with moves along the Beveridge curve

  15. A fall in labor demand: θ E E’ u

  16. In (u,v): v E E’ u

  17. Reallocation shocks • We model it as an increase in s • The Beveridge curve shifts out (why?) • The labor demand curve shifts down • An increase in s is also a negative labor demand shock (why?)

  18. An increase in s: θ E E’ u

  19. In (u,v): v E E’ u

  20. A deterioration in the matching process • The Beveridge curve shifts out again • No effect of labor demand • Contrary to a (pure) reallocation shock, labor flows fall

  21. Business cycles • We can approximmate them by repeated switches between two values of y • They lead to loops around the Beveridge curve • Vacancies « lead » the cycle • Unemployment lags the cycle

  22. The Loop: v u

  23. Long-term unemployment • The model can be used to have heterogeneous search intensity among the unemployed • LTU: lower search intensity than STU • And fraction of LTU larger after recessions •  the Beveridge curve deteriorates • Persistent effects of transitory shocks

  24. How do we do it?

More Related