Declining Search Frictions, Unemployment and Self-Employment

Piotr Denderski and Florian Sniekers

The Economic Journal, 2024, vol. 134, issue 659, 1100-1145

Abstract: In most OECD countries, unemployment rates show no trend, which is puzzling if advancements in information and communication technologies decrease labour-market frictions. We show, both analytically and quantitatively, that accounting for the secular decline in self-employment rates solves the puzzle. While declining labour-market frictions can theoretically explain these trends, we provide contradictory causal evidence that the roll-out of broadband internet has increased self-employment and decreased unemployment rates. We reconcile these observations with a new model featuring frictions in both labour and goods markets. We explain falling self-employment and non-trending unemployment quantitatively by labour-market frictions declining relatively more than goods-market frictions.

Date: 2024
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