Labor Markets with Search and Matching Frictions


Search and matching frictions as a fundamental defining attribute of labor markets. Introduction to search theory. Jovanovic’s model. Models of wage-posting. Roy model of spatial mobility. Incorporation of search-matching frameworks in general equilibrium models: Diamond, Mortensen/Pissarides, and other macro models. Welfare analysis.


The following topics will be covered in the course:

  • The drawbacks of Marshallian analysis of the labor market
  • Nonsequential and sequential models of search: Stigler v. McCall
  • Search models: A dynamic programming perspective
  • Continuous time formulations
  • Search on the job, directed search
  • The Jovanovic model
  • Equilibrium models of unemployment and search: Diamond/Mortensen/Pissarides
  • Models of wage posting and monopsony (Burdett/Mortensen)
  • Macro models with search frictions in the labor market (Merz, Andolfatto, Shimer)
  • Insights from search and matching models for economics of labor market institutions


Literature of Labor Markets with Search and Matching Frictions:

  • Andolfatto, David. 1996. “Business Cycles and Labor-Market Search.” American Economic Review, 86(1): 112–32.
  • Boeri, Tito and Jan van Ours (2009) Imperfect Labor Markets Princeton: Princeton University Press.
  • Burdett, Keith, and Mortensen, Dale T., (1998) “Wage Differentials, Employer Size, and Unemployment.” International Economic Review 39: 257-273.
  • Cahuc Pierre and André Sylberberg (2004) Labor Economics Cambridge, USA: MIT Press.
  • Diamond, Peter A. (1982) “Aggregate Demand Management in Search Equilibrium.” Journal of Political Economy, 90(5): 881–94.April 12 2010 3.
  • Franz, Wolfgang (2006) Arbeitsmarktökonomik Berlin: Springer.
  • Jovanovic, Boyan (1979a). “Job Matching and the Theory of Turnover.” Journal of Political Economy, 87(5): 972–90.
  • Jovanovic, Boyan (1979b) “Firm-Specific Capital and Turnover.” Journal of Political Economy, 87(6): 1246–60.
  • Lyungqvist Lars and Thomas Sargent (2004) Recursive Macroeconomic Theory Cambridge, USA: MIT Press.
  • Manning, Alan (2003) Monopsony in Motion Princeton: Princeton University Press.
  • Merz, Monika. 1995. “Search in the Labor Market and the Real Business Cycle.” Journal of Monetary Economics, 36(2): 269–300.
  • Mortensen, Dale T., and Christopher A. Pissarides.1994. “Job Creation and Job Destruction in the Theory of Unemployment.” Review of Economic Studies, 61(3): 397–415.
  • Mortensen, Dale T., and Christopher A. Pissarides.1999a. “New Developments in Models of Search in the Labor Market,” in Handbook of Labor Economics. O. Ashenfelter and D. Card, eds. Amsterdam: North Holland, 2567–2627.
  • Pissarides, Christopher (2000) Equilibrium Unemployment Theory Cambridge MA MIT Press.
  • Rogerson Richard, Robert Shimer and Randall Wright (2005) “Search-theoretic Models of the Labor Market: A Survey” Journal of Economic Literature 43: 959-588.
  • Sargent, Thomas (1987) Dynamic Macroeconomic Theory Harvard: Harvard University Press Chapter 2.
  • Shimer Robert, (2009) Labor Markets and Business Cycles, Manuscript, University of Chicago.
  • Stigler, George. 1961. “The Economics of Information.” Journal of Political Economy, 69(3):213–25.
  • Shimer, Robert (2005) “The Cyclical Behavior of Equilibrium Unemployment and Vacancies.” American Economic Review, 95(1): 25–49.
  • Zenou, Z. (2008) „Job Search and Mobility in Developing Countries: Theory and Policy Implications” Journal of Development Economics 86: 336-355.
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