[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-seo-324620-105":3,"detail-sidebar-cat-0-en-105":81,"doc-detail-324620-en":131},{"code":4,"msg":5,"data":6},0,"ok",{"site_id":7,"language":8,"slug":9,"title":10,"keywords":11,"description":12,"schema_data":13,"social_meta":74,"head_meta":76,"extra_data":78,"updated_unix":80},105,"en","understanding-unemployment-three-building-blocks-for-a-theory-of-unemployment","Understanding Unemployment - Three Building Blocks for a Theory of Unemployment","","Discusses why unemployment persists in a well-functioning labor market and explains the search-matching framework that incorporates heterogeneity of labor services. Reviews how unemployment theory is built from three elements: wage setting through bargaining and outside options, vacancy creation via the vacancy-supply condition with recruiting costs, and the matching process that brings unemployed workers and vacancies together, affecting unemployment dynamics.",{"@graph":14,"@context":73},[15,34,56],{"@type":16,"itemListElement":17},"BreadcrumbList",[18,23,27,31],{"item":19,"name":20,"@type":21,"position":22},"https://docshare.wps.com","Home","ListItem",1,{"item":24,"name":25,"@type":21,"position":26},"https://docshare.wps.com/document/","Document",2,{"item":28,"name":29,"@type":21,"position":30},"https://docshare.wps.com/document/research-report/","Research & 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unemployment occur even in a well-functioning market economy?","Question",{"text":63,"@type":64},"Because the labor market cannot instantly match workers to jobs due to frictions and because labor services are heterogeneous, making matching and screening costly and complex.","Answer",{"name":66,"@type":61,"acceptedAnswer":67},"How are wages determined in the described labor-market models?",{"text":68,"@type":64},"Wages are typically set through bargaining between workers and firms, with the outcome depending on bargaining power and outside options, which vary with labor market tightness.",{"name":70,"@type":61,"acceptedAnswer":71},"What determines the number of job vacancies firms decide to open?",{"text":72,"@type":64},"Firms open vacancies only when the profits from hiring compensate recruiting and related costs, summarized by the vacancy-supply condition that relates vacancies to the market wage.","https://schema.org",{"og:url":32,"og:type":75,"og:title":10,"og:site_name":45,"og:description":12},"article",{"robots":77,"canonical":32},"index,follow",{"doc_id":79,"site_id":7},324620,1790110034,{"code":4,"msg":82,"data":83},"success",[84,88,92,96,101,106,111,115,120,123,127],{"id":22,"doc_module":4,"doc_module_name":25,"category_name":85,"show_sort_weight":86,"slug":87},"Story & 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Cup","world-cup",{"id":124,"doc_module":4,"doc_module_name":25,"category_name":125,"show_sort_weight":124,"slug":126},10,"Lifestyle","lifestyle",{"id":128,"doc_module":4,"doc_module_name":25,"category_name":129,"show_sort_weight":97,"slug":130},19,"General","general",{"code":4,"msg":82,"data":132},{"doc_id":79,"user_id":133,"nickname":42,"user_avatar":134,"doc_module":4,"category_id":112,"category_name":29,"doc_title":10,"doc_description":12,"doc_content":135,"file_id":136,"file_url":137,"file_type":138,"file_size":139,"view_count":55,"is_deleted":4,"is_public":22,"is_downloadable":22,"audit_status":22,"page_count":97,"language":140,"language_code":8,"site_id":7,"html_lang":8,"table_of_contents":141,"faqs":142,"seo_title":143,"seo_description":12,"update_tm":144,"read_time":145,"preview_page_count":4},4398048950312,"https://ap-avatar.wpscdn.com/avatar/400002538284de19e3c?_k=1778320343897328908","by Guillaume Rocheteau  \nA.  \ndisturbing feature of the labor mar-ket is its seeming inability to clear.Ateach instant in time,there are bothworkers without jobs and jobs withoutworkers.How can it be that productiveresources are left unemployed in a well-functioning market economy?  \nEconomists attribute the failure of thelabor market to instantly allocate work-ers to jobs to various \"frictions.\"Thesefrictions arise because labor,unlike goldor oil,is not a homogenous commodity.The services provided by a plumber aredifferent from those provided by alawyer—and even lawyers differ in theservices they offer;some specialize inconstitutional law,others in private law.To match jobs and workersis far from atrivial problem.The heterogeneity oflabor services also makes it hard foremployers to distinguish productivefrom unproductive workers.And tocomplicate things even more,the mereprocess of moving labor services fromonejob to another is not costless.  \nOver the past 25 years,economists havedeveloped a theory of the labor marketthat takes into account the heterogeneityof labor services and that describes thematching process of workers and firms.The theory,sometimes called the search-matching theory of unemploymentis thedescription that most economists have inthe back o their mind when thinkingabout the labor market.In this Commen-tary,we review this thcory and showhow it can be applied to address severalissues related to unemployment.  \n# ■ Three Building Blocks for aTheory of Unemployment\n\nThe search mode of unemploymentcontains three elements.Each elementcharacterizes a different aspect ofthe  \n# Understanding Unemployment\n\nlabor market,and the three elementstogether deternine the bchavior of theoverall labor market.The first elementdescribes how wages are set.The seconddetermines the number of vacancies thatfirms decide to open,and the thirddescribes the process through whichunemployed workers and vacancies arebrought together,that is,the process ofcreating jobs.  \nSetting Wages  \nNot all labor markets work the same,butin many,wages are determined through abargaining process between workers andtheir employers.The outcome of the bar-gaining process depends on two things:the bargaining power of each party andthe outside options of each.The partywith the most bargaining power—theworker or the firm—is the one that canextract a larger fraction of the surplusthat stems from their relationship.Theoutside options for both workers andfirms depend on the income of each ifthey stay unmatched as well as theirability to locate alternative partners ifthe negotiation fails  \nOutside options are affected by the“imbalances”of the labor market—thenumber of vacancies and the number ofunemployed workers.Wages respond tochanges in outside options as follows.Ifthe number of vacancies per unemployedworker(ameasure of the scarcity ofworkers ofien referred to as labor markettightness)is large,then workers'outsideoptions are good and they can ask for ahigh wage.Fims are willing to pay thishigh wage to avoid having to look foranother worker and incurring highrecruiting costs.But if vacancies arescarce relative to unemployed workers,then workers'outside options are poor  \nOctober 15,2006  \nModern economists have built modelsof the labor market,which isolate themarket's keydrivers and describethe way these interact to produceparticular levels of unemployment.One of the most popular models usedby macroeconomists today is thesearch-matching model of equilibriumunemployment.We explain this model,and show how it can be applied tounderstand the way various policies,such as unemployment benefits,taxes,or technological changes,can affect theunemployment rate  \nand they are willing to accept low wagesto avoid a long spell of unemployment.  \nIn cases where wages are formed differ-ently than by bargaining between work-ers and fims,most descriptions of thewage-setting process would stillpredictthat wages tend to increase as the num-ber of vacancies(per unemployedworker)inc","cbCaibRfkiNaIK8M","https://ap.wps.com/l/cbCaibRfkiNaIK8M","pdf",1152924,"English","# Understanding Unemployment\n## Three Building Blocks for a Theory of Unemployment\n## Setting Wages\n## Opening Job Vacancies","[{\"question\":\"Why does unemployment occur even in a well-functioning market economy?\",\"answer\":\"Because the labor market cannot instantly match workers to jobs due to frictions and because labor services are heterogeneous, making matching and screening costly and complex.\"},{\"question\":\"How are wages determined in the described labor-market models?\",\"answer\":\"Wages are typically set through bargaining between workers and firms, with the outcome depending on bargaining power and outside options, which vary with labor market tightness.\"},{\"question\":\"What determines the number of job vacancies firms decide to open?\",\"answer\":\"Firms open vacancies only when the profits from hiring compensate recruiting and related costs, summarized by the vacancy-supply condition that relates vacancies to the market wage.\"}]","Understanding Unemployment - Three Building Blocks for a Theory of Unemployment | PDF",1789968425,13]