Presentation on theme: "Lecture 2: Frictional unemployment I. The matching function."— 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
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?
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
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