Labor Search and Matching in Macroeconomics

Eran Yashiv ()

No 2743, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The labor search and matching model plays a growing role in macroeconomic analysis. This paper provides a critical, selective survey of the literature. Four fundamental questions are explored: how are unemployment, job vacancies, and employment determined as equilibrium phenomena? What determines worker flows and transition rates from one labor market state to another? How are wages determined? What role do labor market dynamics play in explaining business cycles and growth? The survey describes the basic model, reviews its theoretical extensions, and discusses its empirical applications in macroeconomics. The model has developed against the background of difficulties with the use of the neoclassical, frictionless model of the labor market in macroeconomics. Its success includes the modelling of labor market outcomes as equilibrium phenomena, the reasonable fit of the data, and – when inserted into business cycle models – improved performance of more general macroeconomic models. At the same time, there is evidence against the Nash solution used for wage setting and an active debate as to the ability of the model to account for some of the cyclical facts.

Keywords: worker flows; business cycles; macroeconomics; matching; search; growth; policy (search for similar items in EconPapers)
JEL-codes: E24 E32 E52 J23 J31 J41 J63 J64 J65 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2007-04
New Economics Papers: this item is included in nep-cba, nep-dge, nep-lab and nep-mac
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Citations: View citations in EconPapers (103)

Published - published in: European Economic Review, 2007, 51 (8), 1859-1895

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Related works:
Journal Article: Labor search and matching in macroeconomics (2007)
Working Paper: Labor Search and Matching in Macroeconomics (2007)
Working Paper: Labor search and matching in macroeconomics (2007)
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