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

We develop a random search model with two-sided heterogeneity and match-specific productivity shocks to explain why high-productivity workers tend to work at high-productivity firms despite low-productivity workers gaining about as much from such matches. Our model has two key predictions: i)...

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...

This paper explores the efficiency of decentralized search behavior and matching patterns in a model with ex ante heterogeneity and a constant returns to scale search technology. We show that a linear tax or subsidy on search intensity decentralizes the social optimum. In the absence of the tax,...

This paper argues that unemployment insurance increases labor productivity by encouraging workers to seek higher productivity jobs, and by encouraging firms to create those jobs. We use a quantitative general equilibrium model to investigate whether this effect is comparable in magnitude to the...

I review research on the behavior of the labor wedge, the ratio between the marginal rate of substitution of consumption for leisure and the marginal product of labor. According to competitive, market-clearing macroeconomic models, the ratio is easy to measure and should be equal to the sum of...

We study unemployment insurance for workers who sequentially sample job opportunities. We focus on the optimal timing of benefits and the desirability of allowing borrowing and saving. When workers have constant absolute risk aversion, a simple policy is optimal: a constant benefit during...

This paper accounts for the observed increase in unemployment duration relative to the unemployment rate in the U.S. over the past thirty years, typified by the record low level of short-term unemployment. We show that part of the increase is due to changes in how duration is measured, a...

This paper constructs a tractable general equilibrium model of search with risk-aversion. An increase in risk-aversion reduces wages, unemployment, and investment. Unemployment insurance (UI) has the reverse effect due to market generated moral hazard: insured workers seek high wage jobs with...