Equilibrium Search Models - Theory and Estimation

This course will review recent advances in equilibrium search models to study the impact of labour market frictions on wages and employment mobility, and the consequences of such frictions for the macroeconomic dynamics of unemployment and wage distributions. The course will focus on random search models, by opposition to directed search. In this framework, workers have limited possibilities to direct their search to particular job offers or firm types. The first part of this course will consider a stationary economy with heterogeneous workers and firms. We will start with wage posting models, whereby employers commit to wage contracts and do not respond to outside offers. Then, we will move to sequential auction models where incumbent employers compete with challengers drawn by on-the-job search. We will then turn, in the second part of the course, to an analysis of the effect of aggregate productivity shocks on such frictional, heterogeneous labor markets. In both parts, particular attention will be devoted to understanding the mechanisms of sorting between heterogeneous workers and heterogeneous firms, first in a steady-state environment and then in a stochastic, yet stationary environment subject to business cycle fluctuations. In the final part of the course, we will examine recent attempts to use structural search-matching models of marriage markets and family decisions, in particular regarding labor supply. An important characteristic of this course is the equal attention that will be devoted to both theoretical economic modeling and econometrics. In particular, we will spend significant time on the econometrics of matched employer-employee data.