The introduction of firm size into labor search models raises the question how wages are set when average and marginal product differ. We develop and analyze an alternative to the existing bargaining framework: Firms compete for labor by publicly posting long- term contracts. In such a...

A key question in labor market research is how the unemployment insurance system affects unemployment rates and labor market dynamics. We revisit this old question studying the German Hartz reforms. On average, lower separation rates explain 76% of declining unemployment after the reform, a fact...

We consider a model of on-the-job search where firms offer long-term wage contracts to workers of different ability. Firms do not observe worker ability upon hiring but learn it gradually over time. With sufficiently strong information frictions, low-wage firms offer separating contracts and...

Persistently high unemployment, tight government budgets and the growing scepticism regarding the effects of active labour market policies (ALMP) are the basis for a growing interest in evaluating these measures. This paper intends to explain the need for evaluation on the micro- and...

This paper analyzes the design of optimal unemployment insurance in a search equilibrium framework where search effort among the unemployed is not perfectly observable. We examine to what extent the optimal policy involves monitoring of search effort and benefit sanctions if observed search is...

With the emergence of the Great Recession unemployment insurance (UI) is once again at the heart of the policy debate. In this paper, we review the recent theoretical and empirical evidence on the labor market effects of UI design. We also discuss policy issues related to UI design, including...

This paper analyzes an urn-ball matching model in which workers decide how intensively they sample job openings and apply at a stochastic number of suitable vacancies. Equilibrium is not constrained efficient; entry is excessive and search intensity can be too high or too low. Moreover, an...

We study asset-tested unemployment insurance in an incomplete markets model with moral hazard during job search. Asset testing has two counteracting effects on welfare. On the one hand, it improves consumption insurance by introducing state contingent transfers to agents most in need. On the...

This paper develops a tractable human capital model with limited enforceability of contracts. The model economy is populated by a large number of long-lived, risk-averse households with homothetic preferences who can invest in risk-free physical capital and risky human capital. Households have...

This paper analyzes the joint dynamics of prices, output and employment across firms. We develop a dynamic equilibrium model of heterogeneous firms who compete for workers and customers in frictional labor and product markets. Idiosyncratic productivity and demand shocks have distinct...