Dale T. Mortensen

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.

Wage Differentials, Employer Size, and Unemployment

The unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized. Wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed. The unique nondegenerate equilibrium distribution of wage offers is constructed for three cases: (1) identical workers and employers, (2) identical employers and an atomless distribution of worker supply prices, and (3) identical workers and an atomless distribution of job productivities. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Chapter 15 Job search and labor market analysis

The theory of search is an important young actor on the stage of economic analysis. It plays a major part in a dramatic new field, the economics of information and uncertainty. By exploiting its sequential statistical decision theoretic origins, the search theory has found success by specializing in the portrayal of a decision-maker who must acquire and use information to take rational action in an ever changing and uncertain environment. Although the search theorys specific characterizations can now be found in many arenas of applied economic analysis, most of the theorys original roles are found in the labor economics literature. This chapter reviews the search theorys performances to date in labor market analysis. In a given population of labor force participants, the steady state fractions that are unemployed are equal to the product of the average frequency and duration of unemployment spells. The data sources reveal that unemployment spells are typically frequent but short in all phases of the business cycle, although counter-cyclic increases in both frequency and duration contribute to the well-known time series behavior of unemployment rates.

Unemployment Insurance and Job Search Decisions

Investigation of the development of a model on unemployment insurance (UI) and job search decisions. Information on job turnover; Details on the individual workers preferences; Process of job search decision; Offsetting incentive effects of UI. (Abstract copyright EBSCO.)

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.

An Empirical Model of Growth Through Product Innovation

Productivity dispersion across firms is large and persistent, and worker reallocation among firms is an important source of productivity growth. The purpose of the paper is to estimate the structure of an equilibrium model of growth through innovation. The model is a modified version of the Schumpeterian theory of firm evolution and growth developed by Klette and Kortum (2002). The data set is a panel of Danish firms than includes information on value added, employment, and wages. The model’s fit is good and the structural parameter estimates have interesting implications for the aggregate growth rate and the contribution of worker reallocation to it.

Personal contacts and earnings: It is who you know!☆

Abstract The principal purpose of this study is to derive the equilibrium effects of different mixes of the two information sources that workers most commonly use — direct application to employers and indirect contact through friends and relatives. In a labor market in which identical employers post wage rates once and for all and equally productive workers search for wage offers, workers with a higher probability of obtaining wage information through employed contacts earn more in equilibrium. The result holds regardless of whether offers are contingent on the worker type or not. The proposition also holds in both the case in which types are mixed in a single market and the case in which separate non-competing markets are populated by different types. The implications of the model are consistent with existing empirical findings.

On the Job Search and the Wage Distribution

The article structually estimates an on‐the‐job search model of job separations. Given each employer pays observably equivalent workers the same but wages are dispersed across employers, an employers separation flow is the sum of an exogenous outflow unrelated to the wage and a job‐to‐job flow that decreases with the employers wage. Using data from the Danish Integrated Database for Labour Market Research, the empirical results imply, as predicted by theory, that search effort declines with the wage. Furthermore, the estimates explain the employment effect, defined as the horizontal difference between the distribution of wages earned and the wage offer distribution.

The cyclical behavior of job and worker flows

Job and worker flows in the U.S. and Europe have the following properties: Large and negatively correlated gross job creation and job destruction flows. Procyclical quits and countercyclical flows into and out of unemployment. Mortensen and Pissarides (1991, 1993) present a stochastic dynamic equilibrium model of labor market activity designed to explain these regularities. A parameterized and calibrated generalization of their model is studied here, one which incorporates search by employed workers. A demonstration that a single source of macro disturbance is consistent with the observed magnitudes of the comovements and fluctuations observed is the principal contribution of the paper.

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.