Week 10 lecture
The labour market
- Unemployed looking for jobs
- And firms with vacancies looking for workers
- Imperfect – some workers can’t find jobs some employers can’t find workers
-
- Red = unemployed blue = vacancies
Job matching
- A job match is fromed when an unemployed worker is hired by a firm with an
unfilled vacancy
- The matching process is known as the matching function
- It isn’t perfect
- Suppose that the number of unemployed workers is u
- And the number of vacanices is v
- The number of job matches is
o
o M and alpha are parameters characterising the matching function
o M characterises matching efficiency
o High m means the matching process is efficient
o Alpha captures the relative importance of unemployment and vacancies
o Usually between 0.4-0.6
- Crude
- Assumes in order to hire a firm must post a vacancy (not the case)
- Only workers that can be employed are unemployed (inactive workers and on job
searchers)
, - The key variable in the search model is labour market tightness
o
o This is the number of available jobs per unemployed job seeker
- Unemployed workers find a job at rate f
o
o H from the matching function
o Which can be written as
o
o So
o
o The average duration of unemployment is 1/f
o We assume a proportion t (roughly 5%-10%) of workers leave employment in
each period; this is the separations rate or job destruction rate
- Vacancies are filled at a rate q
o
o Which can be written as
o
o So
o
o The average duration of vacancy is 1/q
The labour market
- Unemployed looking for jobs
- And firms with vacancies looking for workers
- Imperfect – some workers can’t find jobs some employers can’t find workers
-
- Red = unemployed blue = vacancies
Job matching
- A job match is fromed when an unemployed worker is hired by a firm with an
unfilled vacancy
- The matching process is known as the matching function
- It isn’t perfect
- Suppose that the number of unemployed workers is u
- And the number of vacanices is v
- The number of job matches is
o
o M and alpha are parameters characterising the matching function
o M characterises matching efficiency
o High m means the matching process is efficient
o Alpha captures the relative importance of unemployment and vacancies
o Usually between 0.4-0.6
- Crude
- Assumes in order to hire a firm must post a vacancy (not the case)
- Only workers that can be employed are unemployed (inactive workers and on job
searchers)
, - The key variable in the search model is labour market tightness
o
o This is the number of available jobs per unemployed job seeker
- Unemployed workers find a job at rate f
o
o H from the matching function
o Which can be written as
o
o So
o
o The average duration of unemployment is 1/f
o We assume a proportion t (roughly 5%-10%) of workers leave employment in
each period; this is the separations rate or job destruction rate
- Vacancies are filled at a rate q
o
o Which can be written as
o
o So
o
o The average duration of vacancy is 1/q
