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Plenary Session I: Labor Economics

Plenary Session I: Labor Economics. Introduction Bruno Van der Linden. Some basic facts. Job vacancies and unemployment coexist Frictional phenomenon But also long-lasting reality: e.g. long-term unemployment The “Beveridge curve”:

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Plenary Session I: Labor Economics

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  1. Plenary Session I: Labor Economics Introduction Bruno Van der Linden New Challenges in Economic Research

  2. Some basic facts • Job vacancies and unemployment coexist • Frictional phenomenon • But also long-lasting reality: e.g. long-term unemployment • The “Beveridge curve”: negative correlation between unemployment and vacancies at business cycle frequencies New Challenges in Economic Research

  3. Some basic facts • Stable relationship between • The rate at which the unemployed find a job • And the vacancy-unemployment ratio (also called “tightness” on the labor market) • “Wage dispersion” Similar workers paid differently New Challenges in Economic Research

  4. Why is it so? • The “disequilibrium approach” developed to understand the pervasive unemployment problem in Europe: Aggregation over micro-markets i where Li = Min (LCi , LDi ,LSi ) can lead to a stable Beveridge curve (Drèze, Lambert, Sneessens) New Challenges in Economic Research

  5. Why is it so? • The equilibrium search-matching approach to which Dale Mortensen has contributed a lot • “Equilibrium search models” (Burdett, Mortensen) • The job-search model with on-the-job search • Wage often posted by firms • “Matching models” (Mortensen, Pissarides) • A “matching function” • Often ex-post wage bargaining New Challenges in Economic Research

  6. The “equilibrium search-matching” models explain the above facts rather well ... ... But are criticized for several reasons: • Too simple employment contracts • Recent extensions • The “matching function” is a reduced form: Is it invariant to policy changes? • Uncoordinated random application by job-seekers (“urn-ball” models of Hall, Butters) • Shimer (AER 2007), Mortensen (2007) New Challenges in Economic Research

  7. Other critiques • Shimer (AER, 2005): the standard matching model only explains 10% of the volatility of the vacancy-unemployment ratio. Answers? (Recent survey by G. Cardullo) • A matter of calibration (dubious) • Alternatives to the Nash bargaining (unsettled) • Enriching the standard model (Mortensen and Nagypal, Krause and Lubik, Silva and Toledo...) New Challenges in Economic Research

  8. Today’s lecture of Prof. Mortensen can be seen as part of a research program Aim: the building of a “new generation of equilibrium search-matching models” Origin: Phelps(1969) (“island economy”) Lucas and Prescott (1974) New Challenges in Economic Research

  9. New Challenges in Economic Research

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