Complementarities and Substitutabilities in Matching Models

Gabriele Cardullo

Rivista Internazionale di Scienze Sociali, 2008, vol. 116, issue 2, 159-177

Abstract: In a standard search and matching model the labor market presents frictions while in the competitive product market the demand is infinitely elastic. To have a more realistic framework, some macroeconomic models abandon the assumption of infinite elasticity and consider a two-tier productive scheme in the goods market. In this paper, it is shown that, under some reasonable assumptions about the final goods production function (for instance Cobb-Douglas technology) the unique equilibrium of this kind of model features no production and full unemployment, making them useless for any policy analysis. A comparison between the two frameworks shows that a standard matching model overestimates the impact in terms of employment of any policy intervention in the sector where such a policy has been promoted, while at the same time it ignores the effects that emerge in other sectors of the economy.

Keywords: Unemployment; search-matching equilibrium; labor market programs (search for similar items in EconPapers)
JEL-codes: E24 E60 J23 J41 J64 (search for similar items in EconPapers)
Date: 2008
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Related works:
Working Paper: Complementarities and substitutabilities in matching models (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:vep:journl:y:2008:v:116:i:2:p:159-177

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