Eran Yashiv

Update:  January 5, 2002

The Labor Market from A Macroeconomic Perspective



Material for 2001/2 Semester A students

Course Outline

Bibliographic List.

Main Researchers in the Field (with links)
 
 

A. Course Outline


 
Session Topic Main References
PART I    
1 Introduction to search and matching models  
1 The "coconut" model Diamond JPE 1982
PART II    
2,3 The basic model with homogeneity Pissarides book 2000 chapter 1
4 Empirical applications Blanchard and Diamond Brookings 1989,1990 
Yashiv AER 2000 , Petrongolo and Pissarides JEL 2001
5 General equilibrium formulations and business cycle implications Merz JME 1995, Andolfatto AER 1996, Hall handbook 1999
PART III    
6,7 The model with heterogeneity Mortensen and Pissarides RES1994, Handbook 1999, Pissarides book 2000 chapter 2
8 Empirical applications Davis and Haltiwanger Handbook 1999, Abowd and Kramarz Handbook 1999, Cole and Rogerson IER 1999
9 Implications for growth Aghion and Howitt RES 1994, Mortensen and Pissarides RED 1998
10,11 Policy issues Mortensen and Pissarides 1998, EJ 1999, Acemoglu and Shimer JPE 1999
PART IV  
12, 13 Links with microeconomic search models Burdett and Mortensen IER 1998, 
Mortensen 1998, 1999, Acemoglu and Shimer 1999

 
 

B. Bibliographic List.

This course deals with search and matching models of the labor market. It takes a macroeconomic perspective seeking to study the links between labor market frictions and traditional issues in macroeconomics such as business cycles, unemployment, and growth. The following bibliography is by no means exhaustive. Its aim is to present some of the main papers in the field, with a stress on surveys and on more recent contributions. With few exceptions they reflect the interests of macroeconomists in issues concerning the labor market.
 
 

1 Main Books and Surveys

The following are the most recent surveys of the relevant models. These will serve as the base for the study of all of the topics listed below.
 

  1. (*) Hall, Robert E., 1999. "Labor Market Frictions and Employment Fluctuations," Chapter 17 in John B. Taylor and Michael Woodford (eds.), Handbook of Macroeconomics Vol. 1B, North-Holland, Amsterdam.

    2.  
  2. (*) Mortensen, Dale T. and Christopher A. Pissarides, 1999a. “Job Reallocation, Employment Fluctuations, and Unemployment,” Chapter 18 in John B. Taylor and Michael Woodford (eds.), Handbook of Macroeconomics Vol. 1B, North-Holland, Amsterdam.

    3.  
  3. Mortensen, Dale T. and Christopher A. Pissarides, 1999b. “New Developments in Models of Search in the Labor Market,” Chapter 39 in Orley Ashenfelter and David Card (eds.) Handbook of Labor Economics, Vol. 3B,  North-Holland, Amsterdam.

    4.  
  4. (*) Pissarides, Christopher A., 2000. Equilibrium Unemployment Theory, 2nd edition, MIT Press, Cambridge.

    5.  
  5. Rogerson, Richard, 1997. “Theory Ahead of Language in the Economics of Unemployment,” Journal of Economic Perspectives 11, 1, 73-92.
2 Seminal Papers
 

In the late 1960s a few papers laid the groundwork for the search and matching models, i.e. models that emphasize trade frictions in the labor market, and for their macroeconomic implications. The approach relating to informational frictions was developed earlier and was applied in microeconomic contexts. A further development of the model took place in the 1980s. The following is a list of some of the major seminal papers.

  1. Diamond, Peter A., 1981. “Mobility Costs, Frictional Unemployment, and Efficiency,” Journal of Political Economy 89(4), 798-812.

    2.  
  2. (*) Diamond, Peter A., 1982a. “Aggregate Demand Management in Search Equilibrium,” Journal of Political Economy 90(5), 881-894.

    3.  
  3. (*) Diamond, Peter A., 1982b. “Wage Determination and Efficiency in Search Equilibrium,” Review of Economic Studies 49, 761-782.

    4.  
  4. Friedman, Milton, 1968.” The Role of Monetary Policy,” American Economic Review 58, 1-17.

    5.  
  5. Jovanovic, Boyan, 1979. “Job Matching and the Theory of Turnover,” Journal of Political Economy 87, 972-990.

    6.  
  6. Jovanovic, Boyan, 1979. “Firm-Specific Capital and Turnover,” Journal of Political Economy 87, 1246-1260.

    7.  
  7. Lucas, Robert E. and Edward C. Prescott, 1974. “Equilibrium Search and Unemployment,” Journal of Economic Theory 7, 188-209.

    8.  
  8. Mortensen, Dale T., 1970. “A Theory of Wage and Employment Dynamics,” in E. S. Phelps (ed.) Microeconomic Foundations of Employment and Inflation Theory, W.W. Norton, New York.

    9.  
  9. Mortensen, Dale T., 1982. “ The Matching Process as a Noncooperative Bargaining Game,” in J.J. McCall (ed.) The Economics of Information and Uncertainty, University of Chicago Press, Chicago.

    10.  
  10. Phelps, Edmund S., 1968. “Money Wage Dynamics and Labor Market Equilibrium,” Journal of Political Economy76, 679-711.

    11.  
  11. Phelps, Edmund S., 1970. (ed.) Microeconomic Foundations of Employment and Inflation Theory, W.W. Norton, New York.

    12.  
  12. (*) Pissarides, Christopher A., 1985. “Short-Run Dynamics of Unemployment, Vacancies and Real Wages,” American Economic Review 75, 676-690.
3 Advances and Extensions

In the 1990s further developments of the model were proposed. These relate mainly to issues involving heterogeneity of agents.

  1. Bertola, Giuseppe and Ricardo J. Caballero, 1994. “Cross-Sectional Efficiency and Labor Hoarding in a Matching Model of Unemployment,” Review of Economic Studies, 61, 3, 435-456.

    2.  
  2. Barlevi, Gadi, 1999. "The Sullying Effect of Recessions," mimeo.

    3.  
  3. Caballero, Ricardo J. and Mohamad L. Hammour, 1994. "The Cleansing Effect of Recessions," American Economic Review 84 (5), 1350-68.

    4.  
  4. den-Haan, Wouter J., Ramey, Garey and Watson, Joel, 2000. "Job Destruction and the Experiences of Displaced Workers", Carnegie-Rochester-Conference-Series-on-Public-Policy, 52(0), 87-128.

    5.  
  5. den-Haan, Wouter J., Ramey, Garey and Watson, Joel, 2000. "Job Destruction and Propagation of Shocks", American Economic Review, 90(3), 482-498.

    6.  
  6. Hosios, Arthur J., 1990. “On the Efficiency of Matching and Related Models of Search and Unemployment,” Review of Economic Studies, 57(2), 279-98.

    7.  
  7. Moen, Espen R., 1997. “Competitive Search Equilibrium,” Journal of Political Economy, 105(2), 385-411.

    8.  
  8. Mortensen, Dale T. and Christopher A. Pissarides, 1994. “Job Creation and Job Destruction in the Theory of Unemployment,” Review of Economic Studies 61,3,397-416.

    9.  
  9. Pissarides, Christopher A., 1994. “Search Unemployment with On-the-Job Search,” Review of Economic Studies, 61(3), 457-75.

    10.  
  10. Shimer, Robert, 2001. "The Assignment of Workers to Jobs in an Economy with Coordination Frictions", mimeo.
4 Search and Matching and Macro Issues

In the 1990s the relationship to macro issues - of the type explored by Diamond (1982a) - was substantially widened and implemented empirically. The following papers point to both the model's success in accounting for various macroeconomic facts as well as to its failures. Another aspect is the implementation to labor market policy.

4.1 Business Cycles

  1. Andolfatto, David, 1996. “Business Cycles and Labor Market Search,” American Economic Review 86, 112-132.

    2.  
  2. (*) Cole Harald L. and Richard Rogerson, 1999. “Can the Mortensen-Pissarides Matching Model Match the Business Cycle Facts?” International Economic Review, 40 (4), 933-960.

    3.  
  3. Den Haan, Wouter J., Garey Ramand Joel Watson, 1997. ”Job Destruction and the Propagation of Shocks,” American Economic Review 90,3, 482-498.

    4.  
  4. Howitt, Peter, 1988. “Business Cycles with Costly Search and Recruiting,” Quarterly Journal of Economics 103, 147-166.

    5.  
  5. (*) Merz, Monika, 1995.”Search in the Labor Market and the Real Business Cycle,” Journal of Monetary Economics 36,269-300.

    6.  
  6. Merz, Monika, 1999.”Heterogenous Job-Matches and the Cyclical Behavior of Labor Turnover,” Journal of Monetary Economics 43, 91-124.

    7.  
  7. Yashiv, Eran 1999. “Aggregate Labor Market Fluctuations: the Interaction of Shocks and Frictions,” mimeo.


4.2 Growth
 

  1. (*) Aghion, Philippe and Peter Howitt. 1994. “Growth and Unemployment,” Review of Economic Studies 61, 3, 477-494.

    2.  
  2. (*) Mortensen, Dale T. and Christopher A. Pissarides, 1998.” Technological Progress, Job Creation and Job Destruction, “ Review of Economic Dynamics, 1, 733-753.
4.3 Inflation Cooley, Thomas F. and Vincenzo Quadrini, 1999. "A neoclassical model of the Phillips curve relation,"   Journal of Monetary Economics (44)2 pp. 165-193.


4.4 Policy
 

  1. (*) Acemoglu, Daron and Robert Shimer, 1999. “Efficient Unemployment Insurance," Journal of Political Economy, 107, 893-928.

    2.  
  2. Mortensen, Dale T., 1994. “Reducing Supply-Side Disincentives to Job Creation,” in: Reducing Unemployment: Current Issues and Policy Options, Jackson Hole symposium, Federal Reserve Bank of Kansas City, pp. 189-219.

    3.  
  3. Millard, Stephen P., and Dale T. Mortensen, 1997. “The Unemployment and Welfare Effects of Labor Market Policy: A Comparison of the USA and the UK,” in D. J. Snower and G. de la Dehesa (eds.) Unemployment Policy: Government Options for the Labor Market, Cambridge University Press, Cambridge.

    4.  
  4. Mortensen, Dale T. and Christopher A. Pissarides, 1998. “Labor Market Subsidies and Matching Equilibrium Outcomes,” mimeo, June.

    5.  
  5. (*) Mortensen, Dale T. and Christopher A. Pissarides, 1999. “Unemployment Responses to `Skill Biased' Technological Shocks: the Role of Labor Market Policy,”  The Economic Journal.

    6.  
  6. Snower, Dennis J., 1997. “The Simple Economics of Benefit Transfers,” in D. J. Snower and G. de la Dehesa (eds.) Unemployment Policy: Government Options for the Labor Market, Cambridge University Press, Cambridge.

    7.  
  7. Yashiv, Eran, 2001. “Macroeconomic Policy Lessons of Labor Market Frictions,” CEPR Discussion Paper 2749.


5 Empirical Studies

In the 1990s there was also an outburst of empirical work, which either sought to validate the model, or to present relevant labor market facts that needed theoretical explanations.

5.1 Structural Estimation

  1. (*) Yashiv, Eran 2000. “The Determinants of Equilibrium Unemployment,” American Economic Review, 90, 5, 1297-1322.
5.2 Job and Worker Flows
 
  1. (*) Abowd, John M. and Francis Kramarz, 1999. “The Analysis of Labor Markets Using Matched Employer-Employee Data,” Chapter 40 in Orley Ashenfelter and David Card (eds.) Handbook of Labor Economics Vol. 3B, North-Holland, Amsterdam.

    2.  
  2. (*) Blanchard, Olivier Jean and Peter Diamond, 1989. “The Beveridge Curve,” Brookings Papers on Economic Activity 1, 1-60.

    3.  
  3. Blanchard, Olivier Jean and Peter Diamond, 1990. “The Cyclical Behavior of the Gross Flows of U.S. Workers,” Brookings Papers on Economic Activity 2, 85-155.

    4.  
  4. Burda, Michael and Charles Wyplosz, 1994. “Gross Worker and Job Flows in Europe,” European Economic Review 38,6,1287-1315.

    5.  
  5. Davis, Steven J. and John C. Haltiwanger, 1990. “Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications,” NBER Macroeconomics Annual 5, 239-292.

    6.  
  6. Davis, Steven J. and John C. Haltiwanger, 1992. “Gross Job Creation, Gross Job Destruction and Employment Reallocation,” Quarterly Journal of Economics 107, 3, 819-863.

    7.  
  7. Davis, Steven J., John C. Haltiwanger and Scott Schuh, 1996. Job Creation and Destruction, MIT Press (Cambridge, MA).

    8.  
  8. (*) Davis, Steven J., and John C. Haltiwanger, 1999. “Gross Job Flows,“ Chapter 41 in Orley Ashenfelter and David Card (eds.) Handbook of Labor Economics Vol. 3B, North-Holland, Amsterdam.

    9.  
  9. Leonard, Jonathan S., 1987. "In the Wrong Place at the Wrong Time:  The Extent of Frictional and Structural Unemployment," in: K.Lang, and J.S. Leonard (eds.), Unemployment and the structure of labor markets. New York and Oxford: Blackwell, pages 141-63.
  5.3 Matching
 
  1. Berman, Eli, 1997. “Help Wanted, Job Needed: Estimates of a Matching Function from Employment Service Data,” Journal of Labor Economics 15, S251-S292.

    2.  
  2. Coles, Melvyn G., and Eric Smith, 1998. “Marketplaces and Matching,” International Economic Review 39, 239-254.

    3.  
  3. Lagos, Ricardo, 2000. "An Alternative Approach to Search Frictions, " Journal of Political Economy, 108, 5, 851-873.

    4.  
  4. Petrongolo, Barbara and Christopher A. Pissarides, 2001. "Looking into the Black Box: A Survey of the Matching Function, " Journal of Economic Literature 39,2.
  5.4 Hiring
 
 
  1. Nickell, Stephen J., 1986. “Dynamic Models of Labor Demand.” Chapter 9 in O. Ashenfelter and R. Layard (eds.) Handbook of Labor Economics vol.1, North Holland (Amsterdam).

    2.  
  2. Sargent, Thomas J., 1978. “Estimation of Dynamic Labor Demand Schedules Under Rational Expectations, “ Journal of Political Economy 86(6), 1009-1044.

    3.  
  3. Yashiv, Eran, 2000. “Hiring As Investment Behavior,” Review of Economic Dynamics, 3, 486-522.

 

6 Relationship with Micro Studies
 

For a long time the macro-matching and micro-reservation wage approaches to search existed simultaneously but with little ties between them. The following papers begin to link them together (the exceptions are the Jovanovic papers, which are in a different category).
 
 

  1. (*) Acemoglu, Daron and Robert Shimer, 2000. “Wage and Technology Dispersion,” Review of Economic Studies 67, 586-607.

    2.  
  2. Bertola, Giuseppe, 1999. “Microeconomic Perspectives on Aggregate Labor Markets,” Chapter 45 in Orley Ashenfelter and David Card (eds.) Handbook of Labor Economics Vol. 3C, North-Holland, Amsterdam.

    3.  
  3. van den Berg, Gerard J. and Geert Ridder, 1996. "Empirical Equilibrium Models," in D. Kreps and N. Wallace (eds.) Advances in Economics and Econometrics. 1996 World Congress.

    4.  
  4. van den Berg, Gerard J. and Geert Ridder, 1998. "An Empirical Equilibrium Search Model of the Labor Market," Econometrica 66,1183.

    5.  
  5. Bontemps, Christian., Jean- Marc Robin and Gerard J. van den Berg, 1999. "An Empirical Equilibrium Job Search Model with Search on the Job and Heterogenous Workers and Firms," International Economic Review , 40 (4), 1039-.

    6.  
  6. Bowlus, Audra J., Nicholas M. Kiefer and George. R. Neumann, 1995. "Estimation of Equilibrium Wage Distribution with Heterogeneity," Journal of Applied Econometrics 10, S119-S131.

    7.  
  7. (*) Burdett, Ken and Dale T. Mortensen, 1998. “Wage Differentials, Employer Size and Unemployment,” International Economic Review 39, 257-273.

    8.  
  8. Mortensen, Dale T., 1998. “Equilibrium Unemployment with Wage Posting: Burdett-Mortensen Meet Pissarides,” mimeo, September.

    9.  
  9. (*) Mortensen, Dale T., 1999. “Modeling Matched Job-Worker Flows,” mimeo, June.


7 Credit Market Imperfections and Labor Market Frictions

     
  1. Acemoglu ,Daron, 2001. “Credit Market Imperfections and Persistent Unemployment”, European-Economic-Review  45(4-6), 665-679.
        2.  
  2. Fonseca Raquel, Lopez-Garcia, Paloma and  Pissarides, Christopher, A., 2001. "Entrepreneurship, Start-Up Costs and Employment", European-Economic-Review  45(4-6), 692-705.

    3.  
C. Main Researchers in the Field (with links).

Daron Acemoglu (MIT)

David Andolfatto (Waterloo)

Gadi Barlevi (Northwestern)

Giuseppe Bertola (IUE)

Olivier J. Blanchard (MIT)

Ken Burdett (Essex)

Ricardo Caballero (MIT)

Jeffrey Campbell (Chicago)

Thomas Cooley (Rochester and NYU)

Harold L. Cole (Minneapolis Fed.)

Melvyn Coles (Essex)

Steven J. Davis (Chicago)

Peter A. Diamond (MIT)

Christopher L. Foote (Harvard)

Jordi Gali (NYU and Pompeu Fabra)

Jeremy Greenwood (Rochester)

Wouter den Haan (UC San Diego)

Robert E. Hall (Stanford)

John Haltiwanger (Maryland)

Arthur J. Hosios (Toronto)

Boyan Jovanovic (NYU)

Monika Merz (Rice)

Dale T. Mortensen (Northwestern)

Christopher A. Pissarides (LSE)

Garey Ramey (UC San Diego)

Richard Rogerson (Penn)

Thomas Sargent (Stanford)

Robert Shimer (Princeton)

Dennis Snower  (Birbeck)

Giorgio Topa (NYU)

Joel Watson (UC San Diego)

Randall Wright (Penn)

Eran Yashiv - HOME