Christopher Pissarides

Job Creation and Job Destruction in the Theory of Unemployment

In this paper we model a job-specific shock process in the matching model of unemployment with non-cooperative wage behaviour. We obtain endogenous job creation and job destruction processes and study their properties. We show that an aggregate shock induces negative correlation between job creation and job destruction whereas a dispersion shock induces positive correlations. The job destruction process is shown to have more volatile dynamics than the job creation process. In simulations we show that an aggregate shock process proxies reasonably well the cyclical behaviour of job creation and job destruction in the United States.

Loss of Skill During Unemployment and the Persistence of Employment Shocks

This paper shows that when unemployed workers lose some of their skills, the effects of a temporary shock to employment can persist for a long time. The key mechanism is a thin market externality that reduces the supply of jobs when the duration of unemployment increases. The paper develops an overlapping-generations model of search equilibrium and shows that different patterns of persistence and multiple equilibria are possible even with constant returns production and matching technologies.

The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure

I model and simulate the effects of employment tax cuts on unemployment and wages in four equilibrium models: competitive, union bargaining, search and efficiency wages. I find that if the ratio of unemployment compensation to wages is fixed, the effect of the tax cut is mainly on wages. But if income out of work is fixed in real terms, there are substantial employment effects. When wages are determined by bargaining, revenue-neutral reforms that make the tax more progressive also reduce unemployment. Thus, policy towards unemployment compensation and tax structure are key influences on the effect of taxes on unemployment.

Unemployment Responses to 'Skill-Biased' Technology Shocks: The Role of Labour Market Policy

Do skill-biased shocks that increase the spread of labor productivities, interacting with different policy regimes, explain the rise in unemployment in Europe relative to the United States in the 1980s and 1990s? The hypothesis is an implication of a version of the Mortensen and Pissarides (1994) model of equilibrium unemployment which allows for worker heterogeneity. A calibrated version of the model implies that a similar unemployment increase would have occurred in the United States over this period, given changes in relative productivity by education implied by observed wage changes, had unemployment compensation and employment protection policies been at European levels.

Entrepreneurship, start-up costs and employment

Abstract We study the effects of business start-up costs on employment, in a model with managers, workers and matching. We show that higher start-up costs discourage entrepreneurs and increase the fraction of the population who become workers. Job creation suffers and employment settles at a lower level. We illustrate with evidence from major OECD economies, where large variations in start-up costs are correlated with large variations in employment levels.

On-the-job search: Some empirical evidence from Britain

Abstract This paper considers evidence from the Labour Force Survey concerning job search by employed workers. The unconditional probability of observing on-the-job search is decomposed into the product of two constituent probabilities upon which maximum likelihood estimation is performed. The analysis facilitates the identification of who searches and whether search takes place in work or from unemployment. Temporary or part-time employment encourages continued search by men but not women. Skilled workers search more than the unskilled and demonstrate a preference for employed search. Inter-industry wage relativities encourage search on-the-job. Job tenure is a significant determinant of the quality of a job match and the subsequent likelihood that on-the-job search is undertaken. Employed job seekers adopt search strategies that are more readily integrated into a working environment.

Search Intensity, Job Advertising, and Efficiency

This paper demonstrates that if both firms and workers search the other side of the market for job matches the equilibrium rate of unemployment is likely to be too high. Both sides ignore a positive externality of their search: when they establish a job match they remove from the market a job searcher, so they save society his search costs. I show that there is no feasible wage rate that can internalize this externality under fairly weak restrictions on the technology of search.

Labour Market Policies and Unemployment in the OECD

The massive increase in unemployment throughout the OECD since the early 1970s has led governments in many countries to introduce, or to expand, labour market policies such as training schemes, employment subsidies, public works or schemes of counselling or assistance in job search. Such programmes have the objective of reducing unemployment by improving the workings of the labour market. This paper first briefly describes the types of programmes that have been introduced in many OECD countries in recent years. It then suggests a model of the labour market, based on the relationship of unemployment and vacancies (or Beveridge curve), within which the rise in unemployment can be analysed and the effects of policies and of institutions examined. Using the framework, we then identify the main factors causing shifts in unemployment and vacancy rates in 14 of the main OECD countries over the period 1970-88. Our main results are that while corporatism remains the institutional features with the biggest single impact in sustaining low unemployment rates, labour market policies also have a significant and well-defined effect on unemployment which appears large relative to the budgetary costs of the programmes.

Taxes, Subsidies and Equilibrium Labour Market Outcomes

We explore the effects of taxes and subsidies on job creation, job destruction, employment, and wages in the Mortensen-Pissarides version of the search and matching equilibrium framework. Qualitative analytical results show that wage and employment subsidies increase employment, especially of low skill workers, and also increase wages. A job creation or hiring subsidy reduces unemployment duration but increases incidence with an ambiguous effect on overall employment. A firing tax has the reverse effects but the same indeterminacy. In the special case of a competitive search equilibrium, the one in which search externalities are internalized, there is a first best configuration: no tax on the wage, an employment subsidy that offsets the distortions on the job destruction margin induced by unemployment compensation and employment protection policy, and a hiring subsidy equal to the implicit tax on severance imposed by any form of employment protection, with the costs of these and other policies financed by a non-distortionary consumption tax. Computational experiments confirm this ideal also determines the direction in which marginal improvements can be made both in terms of efficiency and in terms of improving low skill worker employment and wage outcomes.

Social security and the choice between full-time work, part-time work and retirement

Abstract This paper investigates the determinants of retirement decisions in the UK. To deal with the endogeneity bias introduced by the piecemeal linear budget constraint generated by the social security system, it specifies a utility function in income–leisure space and assumes that individuals maximise it over three discrete regimes: full-time work, part-time work, and retirement. Using maximum likelihood techniques, it estimates the utility function and quantifies the influence of pensions, wages and personal characteristics (age, health, status, etc.) on the probability of partial and complete withdrawal from the labour market.