The Fundamental Surplus in Matching Models

Thomas Sargent and Lars Ljungqvist

No 10489, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: To generate big responses of unemployment to productivity changes, researchers have reconfigured matching models in various ways: by elevating the utility of leisure, by making wages sticky, by assuming alternating-offer wage bargaining, by introducing costly acquisition of credit, or by positing government mandated unemployment compensation and layoff costs. All of these redesigned matching models increase responses of unemployment to movements in productivity by diminishing the fundamental surplus fraction, an upper bound on the fraction of a job's output that the invisible hand can allocate to vacancy creation. This single common channel unites analyses of business cycle and welfare state dynamics.

Keywords: Business cycle; Fundamental surplus; Market tightness; Matching model; Unemployment; Volatility; Welfare state (search for similar items in EconPapers)
JEL-codes: E24 E32 J08 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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Citations: View citations in EconPapers (13)

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