We show that equilibrium involuntary unemployment emerges in a multi– stage game model where all market power resides with firms, on both the labour and the output market. Firms decide wages, employment, output and prices, and under constant returns there exists a continuum of subgame perfect Nash equilibria involving unemployment and positive profits. A firm does not undercut the equilibrium w...

Why Are European Countries Diverging in Their Unemployment Experience? During the nineties, unemployment has fallen in a number of European countries while it has remained high in others. The paper discusses potential causes for that evolution in light of recent economic research, emphasizing obstacles to reform due to political constraints, the prevalence of ideology, and agency issues within ...

This paper addresses the large degree of frictional wage dispersion in US data. The standard job matching model without on-the-job search cannot replicate this pattern. With on-the-job search, however, unemployed job searchers are more willing to accept low wage offers since they can continue to seek for better employment opportunities. This explains why observably identical workers may be paid...

Can Active Labor Market Policy Be Counter-Productive? We study active labor market policies (ALMP) in a matching model. ALMPs are modelled as a subsidy to job search. Workers differ in their productivity, and search takes place along an extensive margin. An additional job seeker affects the quality of unemployed workers. As a result, the Hosios conditions are no longer valid. To replicate the o...

Opportunities for skilled and unskilled workers in the UK diverged over the last quarter of the twentieth century. We develop an empirical framework consistent with these trends that highlights the importance of skill heterogeneity in both wage setting and labour demand in explaining aggregate labour market outcomes. The framework enables us to quantify the macroeconomic effects of shocks that ...

We consider a model of a sector in which the same set of oligopolistic firms faces a common labour supply constraint. The wage is given in the short run, adjusting competitively in the longer run. When the costs of job creation are low relative to the degree of output market power, there exists no wage that clears the labour market in the short run, and at some wages there are two equilibria, o...

We use the American Time Use Survey (ATUS) 2003-2012 to estimate time spent in non-work on the job. Non-work is substantial and varies positively with local unemployment. Time spent in non-work conditional on any positive amount rises, while the fraction of workers reporting positive values declines with unemployment. Both effects are economically important, and are consistent with a model in w...

Using a newly constructed panel of manufacturing industry data for interwar Norway, we estimate a long-run wage curve for the 1930s that has all the modern features of being homogeneous in prices, proportional to productivity, and having an unemployment elasticity of −0.1. This result is more typical of contemporary European than U.S. wage equations, even if the labour market in interwar Norway...

There exists no consensus regarding the definition and the measure of persistence. We aim to spark research interests to address the lack of a standard definition. This paper reviews this issue and proposes an informal definition to unemployment persistence. JEL CLASSIFICATION: B41, E24. ∗Department of Economics, College of Business Administration, University of Central Florida. E-mail: omikhai...

We show that labor search frictions are an important determinant of the cross-section of equity returns. In the data, sorting firms by loadings on labor market tightness, the key statistic of search models, generates a spread in future returns of 6% annually. We propose a partial equilibrium labor market model in which heterogeneous firms make optimal employment decisions under labor search fri...