Chapter 7 - Search in Macroeconomic Models of the Labor Market☆
Section snippets
Cyclical Fluctuations
This section explores the ability of search models to explain the behavior of labor markets at business cycle frequencies. We break our analysis into three parts, mirroring the three ways that search may be important for macroeconomic models. First we update and extend labor market facts in an earlier volume of this Handbook (Lilien and Hall, 1986), highlighting the connection between those facts and the structure of search-and-matching models. We argue that search models offer a useful
Trends
We now shift our attention from cyclical fluctuations to long-run trends. The persistent, widespread, but unequal increase in unemployment across OECD countries in the 1970s and 1980s motivated a substantial body of research that sought to understand why different countries experienced different outcomes. This section reviews some of the key features of the low-frequency data and then examines how search theory has been used to understand these trend changes in labor market outcomes.
Conclusion
Our objective in this chapter has been to explore how the explicit introduction of search frictions into otherwise standard macroeconomic models affects our understanding of aggregate labor market outcomes in two different contexts. In our analysis of business cycles, we found that the search framework is useful for interpreting facts about unemployment and labor market flows. But we also found that search frictions tend to dampen fluctuations in output and employment without significantly
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We are grateful for comments from Steven Davis, Robert Hall, Dale Mortensen, Christopher Pissarides, and the editors, for research assistance from Chris Herrington, and for financial support from the National Science Foundation.