Econ2102_Lecture4_handout

S job separanons 20002011 us job separanons 20002011

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Unformatted text preview:   A simple dynamic search-theoretic model of labour flows: –  Two endogenous variables: employment E and unemployment U –  Model states how employment and unemployment evolve over time –  Analogy: water entering and draining a bath tub at the same rate MoNvaNon for Bathtub Model unemployment job separation rate size of labor force •  Gross flows for separaNons and job findings are an order of magnitude larger than net change in employment job finding rate 6 8/4/11 U.S. Job SeparaNons 2000 ­2011 U.S. Job SeparaNons 2000 ­2011 U.S. Net Employment 1939 ­2011 •  Solving the model: – Set the change in unemployment to zero – Solve the equation for U 7 8/4/11 •  The unemployment rate is defined as the fraction of the labor force that is unemployed. Therefore: Sources of Frictional Unemployment •  Insights of the model: –  Only way to alter the natural rate of unemployment is: •  change the job finding rate. •  change the job separation rate. –  Policies along these lines can have unintended consequences. U.S. Unemployment Rate 1948 ­2011 •  Unemployment benefits •  Demographics •  Sectoral Shifts (most important factor in King and Morley, 2007) 8 8/4/11 Australian Unemployment Rate 1978 ­2011 The Bathtub Model in Excel •  hfp://research.economics.unsw.edu....
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