Equilibrium unemployment theory

273 Pages·2017·1.051 MB·English

by  Pissarides, Christopher A

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“Pissarides incorporates important new developments into equilibrium unemploy- E
ment theory. A particularly important development is endogenizing job destruction q
as well as job creation into a unified theoretical framework. This framework, along u
with new data on job and worker flows, promises to provide a better understanding i
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of unemployment.” i
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—Edward C. Prescott, the University of Chicago and the University of Minnesota
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“The unemployment story has many mansions, and this book owns one of them.
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It analyzes unemployment as a search-and-match-mediated equilibrium of flows
through the labor market, set in motion by job destruction and job creation. The
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new edition adds endogenous job destruction and on-the-job search to the story,
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and can fairly claim to tell you everything you always wanted to know about
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search unemployment, but didn’t know whom to ask.”
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—Robert M. Solow, Institute Professor of Economics, emeritus, Massachusetts
Institute of Technology p
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“Christopher Pissarides provides a definitive introduction to the search model of y Unemployment
the labor market. The revised model, in dispensing with money and deriving real m
interest rates from real considerations, reveals itself to be a full subscriber to the
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natural-rate theory of unemployment. Among the several additions, the new
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chapter endogenizing job destruction is particularly valuable.”
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—Edmund Phelps, McVickar Professor of Political Economy, Columbia University Theory
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“Pissarides provides the labor-market building blocks for the new macroeconomics.
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A must-read for everyone in macro and labor.” o
—Bob Hall, Hoover Institution and Economics Department, Stanford University r second edition
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P Christopher A. Pissarides
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Background image © 2000 PhotoDisc, Inc.
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The MIT Press
Massachusetts Institute of Technology
Cambridge, Massachusetts 02142
http://mitpress.mit.edu ,!7IA2G2-bgbihj!:t;K;k;K;k
PISEH2 0-262-16187-7
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Equilibrium Unemployment Theory
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Equilibrium Unemployment Theory
second edition
Christopher A.Pissarides
The MIT Press
Cambridge,Massachusetts
London,England
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©2000 Massachusetts Institute of Technology
All rights reserved.No part of this book may be reproduced in any form by any electronic
or mechanical means (including photocopying, recording, or information storage and
retrieval) without permission in writing from the publisher.
This book was set in Times Roman by Best-set Typesetter Ltd.,Hong Kong.
Printed and bound in the United States of America.
Library of Congress Cataloging-in-Publication Data
Pissarides,Christopher A.
Equilibrium unemployment theory / Christopher A.Pissarides.— 2nd ed.
p. cm.
Includes bibliographical references and index.
ISBN 0-262-16187-7 (alk.paper)
1. Unemployment—Mathematical models. 2. Equilibrium (Economics)
I. Title.
HD5707.5.P55 2000
331.133¢7¢01—dc21 99-41746
CIP
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Contents
Preface xi
Preface to the First Edition xv
I FOUNDATIONS 1
1 The Labor Market 3
1.1 Trade in the Labor Market 3
1.2 Job Creation 10
1.3 Workers 13
1.4 Wage Determination 15
1.5 Steady-State Equilibrium 18
1.6 Capital 23
1.7 Out-of-Steady-State Dynamics 26
1.8 Notes on the Literature 33
2 Endogenous Job Destruction 37
2.1 Productivity Shocks and Reservation Rules 37
2.2 Steady-State Equilibrium 40
2.3 Unemployment,Job Creation,and Job Destruction 46
2.4 Capital 57
2.5 Out-of-Steady-State Dynamics 59
2.6 Notes on the Literature 63
3 Long-Run Equilibrium and Balanced Growth 67
3.1 Large Firms 68
3.2 Unemployment Income 70
3.3 Technological Progress:The Capitalization Effect 75
3.4 Endogenous Capital and Interest 77
3.5 Creative Job Destruction 82
3.6 Notes on the Literature 89
II FURTHER ANALYSIS OF THE LABOR MARKET 93
4 Labor Turnover and On-the-Job Search 95
4.1 Exogenous Labor Turnover 95
4.2 Search on the Job 103
4.3 Equilibrium 109
4.4 The Implications of On-the-Job Search of Equilibrium 114
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viii Contents
4.5 The Implications of Higher Labor Productivity 119
4.6 Notes on the Literature 120
5 Search Intensity and Job Advertising 123
5.1 The Matching Technology with Variable Intensity 124
5.2 The Choice of Search Intensity 126
5.3 The Choice of Job Advertising 129
5.4 Equilibrium 131
5.5 Unemployment and Search Intensity 135
5.6 Notes on the Literature 141
6 Stochastic Job Matchings 145
6.1 Job Matching 146
6.2 The Choice of Reservation Wage 148
6.3 The Choice of Hiring Standards 152
6.4 Wage Determination 154
6.5 Equilibrium 156
6.6 Unemployment and Vacancies with Stochastic Job
Matchings 160
6.7 Notes on the Literature 164
7 Labor Force Participation and Hours of Work 167
7.1 Labor Force Participation 167
7.2 The Discouraged- and Added-Worker Effects 170
7.3 Hours of Work 175
7.4 Notes on the Literature 179
III CONSTRAINED EFFICIENCY AND THE ROLE OF
POLICY 181
8 Efficiency 183
8.1 Job Creation 183
8.2 Job Destruction 188
8.3 Search Intensity and Job Advertising 190
8.4 Stochastic Job Matchings 195
8.5 Labor-Force Participation 196
8.6 Three Questions about Efficiency 197
8.7 Notes on the Literature 201
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Contents ix
9 The Role of Policy 205
9.1 Policy Instruments 205
9.2 Wage Determination 207
9.3 Equilibrium with Policy 212
9.4 Job Destruction 213
9.5 Search Intensity 219
9.6 Stochastic Job Matchings 222
9.7 Compensating Policy Changes 225
9.8 Search Externalities and Policy 229
9.9 An Alternative Approach to the Design of Policy 230
9.10 Notes on the Literature 233
Bibliography 235
Index 247