Declining Search Frictions, Unemployment, and Growth

Paolo Martellini and Guido Menzio

Journal of Political Economy, 2020, vol. 128, issue 12, 4387 - 4437

Abstract: For a search-theoretic model of the labor market, we seek conditions for the existence of a balanced growth path (BGP), where unemployment, vacancy, and worker’s transitions rates remain constant in the face of improvements in the production and search technologies. A BGP exists iff firm-worker matches are inspection goods and the quality of a match is drawn from a Pareto distribution. Declining search frictions contribute to growth with an intensity determined by the tail coefficient of the Pareto distribution. We develop a strategy to measure the rate of decline of search frictions and their contribution to growth.

Date: 2020
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Related works:
Working Paper: Declining Search Frictions, Unemployment and Growth (2018)
Working Paper: Declining Search Frictions, Unemployment and Growth (2018)
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