Perspectives on Unemployment from a General Equilibrium Search Model (original) (raw)

Modern Theory of Unemployment Fluctuations: Empirics and Policy Applications,

Strong and widely accepted evidence shows that the natural rate of unemployment varies over time with substantial amplitude. The frictions in the labor market that account for positive normal levels of unemployment are not simple and mechanical. Instead, as a rich modern body of theory demonstrates, the natural rate of unemployment is an equilibrium in which the volumes of job-seeking by workers and worker-seeking by employers reach a balance controlled by fundamental determinants of the relative prices of the two activities. In recessions, unemployment rises, and job vacancies fall. The natural explanation is an economywide fall in labor demand. But a compelling model that generates a fall in labor demand without a counterfactual fall in productivity has eluded theorists to date. Nonetheless, policymakers have appropriately adopted the view that the natural rate varies over time and is not a simple benchmark for setting monetary instruments.

Toward a Non-Equilibrium Unemployment Theory

Computational Economics, 2006

This paper presents a non-equilibrium, agent-based model of workers and firms, with on-the-job searching, endogenous entrepreneurial decisions and endogenous wage and income determination. Workers and firms are heterogeneous, and learn their strategy in the labor market. The model is able to reproduce a number of stylized facts generally accepted in labor economics and industrial organization, such as the Wage, Beveridge and Okun curve, and the skewness of wage, income and firm size distribution. Most interestingly, important stylized facts such as a negatively sloped Wage Curve and a constant returns to scale matching function emerge only out-of-equilibrium, during the adjustment processes toward the stationary state. Thus, from a theoretical point of view the model suggests that taking these stylized facts as "building blocks" of equilibrium models might be misleading. The results stress two additional points. From a methodological point of view, the use of non-equilibrium computational models allows for a more comprehensive investigation of the labor market, by considering the endogenous character of many relevant variables. From an empirical point of view, the joint determination of all aggregate relationships and their dependence on the equilibrium or non-equilibrium state of the system suggest to move from the investigation of empirical regularities in isolation one from the other to a joint analysis. an anonymous referee for useful suggestions. I am also indebted to Michele Sonnessa, author of the JAS simulation platform, and to Jennifer Chubinski for their assistance. Usual disclaimers apply.

Equilibrium Unemployment in a General Equilibrium Model with Taxes

The Manchester School, 2014

With a dynamic computable general equilibrium model with Pissarides and Mortensen and Pissarides type equilibrium unemployment, impacts of tax-transfer programmes are assessed for the UK. The model contains more desirable structure of households and production sectors and includes more type of shocks in preferences, technology, trade and policy instruments for stochastic analyses than is usual in dynamic stochastic general equilibrium (DSGE) models. It assesses growth and cycles as well as equity and efficiency effects of policies in the long run simultaneously. The labour-leisure and consumption-saving decisions impact more on growth and welfare of households with efficient matching making transitions to employment easier for job seekers.

The Macroeconomic Consequences of Long-Term Unemployment

Australian Economic Review, 1991

This article examines the linkages between long-term unemployment and two important recent debates in Australia: first, whether unemployment exhibits hysteresis tendencies; second, the nature of the relationship between unemployment and real wages. Our findings favour the hysteresis account in that the evidence rejects an equilibrium relationship between long-term and total unemployment. Also, the effect on real wages of an increase in the number of longterm unemployed is found to be both positive and significant.

Labor Market Dynamics and Unemployment: A Reconsideration

Brookings Papers on Economic Activity, 1979

and Unemployment: A Reconsideration ECONOMISTS in recent years have come to view unemployment as a dynamic phenomenon. Both theoretical and empirical research have emphasized the role of turnover in understanding unemployment. The instability of employment, the brevity of unemployment spells, and the large flows into and out of unemployment have been central themes of this work.' Note: This research was supported by the research has focused on providing explanations of unemployment that are based on individual maximization. Two primary theoretical paradigmssearch theory and the theory of contracts-have evolved as explanations of why persons rationally choose to be unemployed some of the time. Both are, in an important sense, theories of voluntary unemployment.

2014): “The Cyclical Behavior of Equilibrium Unemployment and

2020

We show that the inability of a standardly-calibrated stochastic labor search-and-matching model to account for labor market volatility extends beyond U.S. data to a set of OECD countries. That is, the volatility puzzle is ubiquitous. We also argue that using cross-country data is helpful in evaluating the relative merits of the model alternatives that have appeared in the literature. In illustrating this point, we take the solution proposed in Hagedorn and Manovskii (2008) and show that it continues to result in counterfactually low labor market volatility for some countries in our sample where the degree of persistence in the underlying productivity process and/or steady-state job-finding rates are sufficiently low. Moreover, the model's ability to generate data-like labor market volatility largely disappears for vacancy-filling rates smaller than in the U.S.. JEL Classification: E24, E32, J63, J64.