Lecture notes
unemployment, vacancies and wages
- Institution
- University Of Bath (UoB)
unemployment, vacancies and wages
[Show more]
Seller
Follow
Content preview
Week 11 lecture – unemployment, vacancies and wagesA search model
- Each firm has a single job slot for a single worker
- Jobs are either filled or vacant
- If filled, the output is y
- We assume for simplicity that output is constant
- If the output is constant, the wage will be constant
- And so will θ, f and q
- We denote the lifetime profit of a firm with a currently filled job slot as J
o
o Profit of the firm with a filled job slot
o In the current period, the output is y and cost of labour is w
o With probability (1-T) the job remains filled and productive in the next
period; if so, discounted future profit in that period is again J
o With probability T the job match breaks down in the next period; if so,
discounted future profit in the period is V
- And the lifetime profit of a firm with a vacant job slot as V
o
o No y because no output because no worker
o Firms must pay a cost of to post a vacancy
o With probability q the vacancy is filled and the job becomes productive in the
next period
o With the probability (1-q) the vacancy remains unfilled
o V = 0 because of the pressure from new entrants
o If V was positive firms would go into the market
If you can go into a market without a worker and make a profit you
will
- V=0 so
o The profit of a currently filled and productive job simplifies to
o The profit of a current vacancy simplifies to
o The value of a firm with a productive job match is positive (J>0) even if the
value of V is 0
o This is because a firm with a productive job match does not have to incur the
cost of hiring a new worker
- The value of having a productive worker depends on the profit of a firm and the cost
of replacing the worker
, - Combining the last two equations
o
o Vacancy creation curve
o Substituting out q
o
- Higher wages lead to less employment and more unemployment
- Similar to the labour demand curve
o A higher wage implies a lower value for (r + T) ℽ/q
o This requires a higher value of q
o Since q = mθ^-⍺, a higher q implies a lower θ
o Since f = mθ^1-⍺, a lower θ implies a lower job-finding rate
o If workers find jobs at a lower rate, more workers are unemployed
o So there is more unemployment
Vacancy creation curve
- w and θ^⍺
- it will shift out if
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller harveygurner2. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £3.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
66475 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now