This chapter assesses how models with search frictions have shaped our understanding of aggregate labor market outcomes in two contexts: business cycle fluctuations and long-run (trend) changes. We first consolidate data on aggregate labor market outcomes for a large set of OECD countries. We...

This paper argues that a broad class of search models cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies in response to shocks of a plausible magnitude. In the U.S., the vacancy-unemployment ratio is 20 times as volatile as average labor...

We develop a dynamic model of transitions in and out of employment. A worker finds a job at an optimal stopping time, when a Brownian motion with drift hits a barrier. This implies that the duration of each worker's jobless spells has an inverse Gaussian distribution. We allow for arbitrary...

We extend the concept of competitive search equilibrium to environments with private information, and in particular adverse selection. Principals (e.g. employers or agents who want to buy assets) post contracts, which we model as revelation mechanisms. Agents (e.g. workers, or asset holders)...

In this paper, we develop a general stochastic model of directed search on the job. Like in the analogous models of random search on the job, the state of the economy in our model includes the infinite-dimensional distribution of workers across different employment states (unemployment, and...

We build a directed search model of the labor market in which workers' transitions between unemployment, employment, and across employers are endogenous. We prove the existence, uniqueness and efficiency of a recursive equilibrium with the property that the distribution of workers across...

This paper extends Lucas and Prescott's (1974) search model to develop a notion of rest unemployment. The economy consists of a continuum of labor markets, each of which produces a heterogeneous good. There is a constant returns to scale production technology in each labor market, but labor...

We survey search-theoretic models of the labor market and discuss their usefulness for analyzing labor market dynamics, job turnover, and wages. We first examine single-agent models, showing how they can incorporate many interesting features and generate rich predictions. We then consider...

The standard theory of equilibrium unemployment, the Mortensen-Pissarides search and matching model, cannot explain the magnitude of the business cycle fluctuations in two of its central elements, unemployment and vacancies. Modifying the model to make the present value of wages unresponsive to...

This paper studies the assignment of heterogeneous workers to heterogeneous jobs in the presence of coordination frictions. Firms offer human-capital-contingent wages, workers observe these and apply for a job. In a symmetric equilibrium, identical workers use identical mixed strategies in...