Lecture 2: Frictional unemployment

1 / 24

# Lecture 2: Frictional unemployment - PowerPoint PPT Presentation

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

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.

## PowerPoint Slideshow about 'Lecture 2: Frictional unemployment' - samantha-monroe

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.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

### 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
• In the models we have seen, unemployment would fall to zero absent the rigidities
• We need to enrich these models
• 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?
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
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
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
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
In (u,v):

v

E

E’

u

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?)
In (u,v):

v

E

E’

u

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