New developments in models of search in the labor market

Equilibrium models of labor markets characterized by search and recruiting friction and by the need to reallocate workers from time to time across alternative productive activities represent the segment of the research frontier explored in this chapter. In this literature, unemployment spell and job spell durations as well as wage offers are treated as endogenous outcomes of forward looking job creation and job destruction decisions made by the workers and employers who populate the models. The solutions studied are dynamic stochastic equilibria in the sense that time and uncertainty are explicitly modeled, expectations are rational, private gains from trade are exploited, and the actions taken by all agents are mutually consistent. We argue that the framework provides a useful setting in which to study the effects of alternative wage setting institutions and different labor market policy regimes.