Department of Economics

University of Pennsylvania

Spring 2010



Description: The course surveys the theoretical and empirical literature on search and matching models of the labor market. These models can simultaneously and parsimoniously explain the existence of unemployment, the patters of workers’ transitions across different firms, and the extent and shape of wage inequality for seemingly identical workers. Because of these properties, search and matching models are commonly used for measuring the long-run effects of labor market policies, as well as for measuring the cyclical effect of transitory shocks. The course is intended for second and third year students who plan on writing their dissertation in macroeconomics, labor economics or search theory.     



Logistic: Class meets on Monday from12:00 to 3:00 PM in McNeil 285. Office hours are on Monday from 5:00 to 7:00 PM in McNeil 467. 



Requirements: TBD.



General References:


1. Mortensen, D. 2003. Wage dispersion: why are similar workers paid differently? MIT Press, Cambridge MA.

2. Pissarides, C. 2000. Equilibrium unemployment theory. MIT Press, Cambridge MA. 

3. Mortensen, D., and C. Pissarides. 1999. New Developments in Models of Search in the Labor Market, Ch. 39 in Ashenfelter and Card, Handbook of Labor Economics, volume 3B, Elsevier.

4.  Mortensen, D., and C. Pissarides. 1999. Job Reallocation, Employment Fluctuations and Unemployment, Ch 18 in Taylor and Woodford, Handbook of Macroeconomics, volume 1B, Elsevier, 1999.

5. Rogerson, R., R. Shimer, and R. Wright. 2005. Search-Theoretic Models of the Labor Market: A Survey. Journal of Economic Literature.



Outline and Readings: (Subject to revision)


A. Random Search and Wage Posting


1. McCall, J. 1970. Economics of information and job search. Quarterly Journal of Economics 84 (1): 113–126.

2. Burdett, K. 1978. Employee search and quits. American Economic Review.

3. Diamond, P. 1971. A model of price adjustment. Journal of Economic Theory 3: 217--27.

4. Albrecht, J.W., and B. Axell. 1984. An equilibrium model of search unemployment. Journal of Political Economy 92: 824-40.

5. Burdett, K., and D. Mortensen. 1998. Wage differentials, employer size and unemployment. International Economic Review.



B. Workers’ Turnover and Wage Inequality


6. Christensen, B., R. Lentz, D. Mortensen, G. Neumann, and A. Werwartz. 2005. On the job search and the wage distribution. Journal of Labor Economics 23: 31-58.

7. Jolivet, G., F. Postel-Vinay, and J. Robin. 2006. The empirical content of the job search model: labor mobility and wage distributions in Europe and the US, European Economic Review 50: 877-907.

8. Postel-Vinay, F., and J. Robin. 2002. Equilibrium wage dispersion with worker and employer heterogeneity, Econometrica 70: 2295-350.

9. Hornstein, A., P. Krusell, and G. Violante. 2006. Frictional wage dispersion in search models: a quantitative assessment. Mimeo, Princeton University.



C. Random Search and Matching


10. Pissarides, C. 1985. Short-run equilibrium dynamics of unemployment, vacancies, and real wages. American Economic Review 75 (4): 676-90.

11. Petrongolo, B., and C. Pissarides. 2001. Looking into the black box: a survey of the matching function. Journal of Economic Literature 39: 390-431.

12. Mortensen, D. and C. Pissarides. 1994. Job creation and job destruction in the theory of unemployment. Review of Economic Studies 61: 397-415.

13. Caballero, R. and M. Hammour. 1994. The cleansing effect of recessions. American Economic Review: 84, 1350-1368.

14. Barlevy, G. 2002. The sullying effect of recessions. Review of Economic Studies 69: 65- 96.



D. Job Creation and Job Destruction


15. Davis, S., and J. Haltiwanger. 1992. Gross job creation, gross job destruction and employment reallocation. Quarterly Journal of Economics 107: 819-863.

16. Bowlus, A. 1995. Matching workers and jobs: cyclical fluctuations in match quality. Journal of Labor Economics 13: 335-50.



E. Directed Search


17. Montgomery, J. 1991. Equilibrium wage dispersion and interindustry wage differentials. Quarterly Journal of Economics 106: 163--79.

18. Burdett, K., S. Shi, and R. Wright. 2001. Pricing and matching with frictions. Journal of Political Economy 109: 1060--85.

19. Albrecht, J.W., P.A. Gautier, and S.B. Vroman. 2006. Equilibrium directed search with multiple applications. Review of Economic Studies.

20. Galenianos, M., and P. Kircher. 2008.

21. Moen, E. 1997. Competitive search equilibrium. Journal of Political Economy 105: 694--723.

22. Menzio G. 2007. A theory of partially directed search. Journal of Political Economy 115:



F. Employment Contracts


23. Stevens, M. 2004. Wage tenure contracts in a frictional labor market: firms‘ strategies for recruitment and retention. Review of Economic Studies 71: 535-51.

24. Thomas, J., and T. Worrall. 1988. Self-enforcing wage contracts. Review of Economic Studies 55: 541-53.

25. Burdett, K., and M. Coles. 2003. Equilibrium wage-tenure contracts. Econometrica 71: 1377-404.

26. Shi, S. 2009. Directed search for equilibrium wage-tenure contracts. Econometrica 77: 561-584.

27. Menzio, G., and S. Shi. Forthcoming. Block recursive equilibrium for stochastic models of search on the job. Journal of Economic Theory.

28. Menzio, G., and S. Shi. Forthcoming. Forthcoming. Directed search on the job, heterogeneity, and aggregate fluctuations. American Economic Review.

29. Guerrieri, V., S. Shimer, and R. Wright. 2009. Adverse selection in competitive search equilibrium. NBER Working Paper 14195.

30. Rudanko, L. 2009. Labor market dynamics under long-term contracting. Journal of Monetary Economics 56: 170-83.   



G. Cyclical Fluctuations of the Labor Market


31. Shimer, R. 2005. The cyclical behavior of unemployment and vacancies. American Economic Review, 95: 25--49.

32. Hall, R. 2005. Employment efficiency and sticky wages: evidence from flows in the labor market. American Economic Review 87: 397--407.

33. Kennan, J. Forthcoming. Private information, wage bargaining and employment fluctuations. Review of Economic Studies.

34. Menzio and Moen. 2009. Worker replacement. PIER Working Paper

35. Hagedorn, M., and I. Manovskii. 2008. The cyclical behavior of equilibrium unemployment and vacancies revisited. American Economic Review 98: 1692-706.

36. Menzio, G., and S. Shi. 2009. Efficient search on the job and the business cycle. NBER Working Paper 14905.

37. Veracierto, M. 2008. On the cyclical behavior of employment, unemployment and labor force participation. Journal of Monetary Economics 55: 1143-57.  

38. Diamond, P. 1982. Aggregate demand management in search equilibrium. Journal of Political Economy 90: 881-94.   



H. Two-Sided Heterogeneity, Marriage and Assignment


39. Becker, G. 1973. A theory of marriage: part i. Journal of Political Economy 81: 813-46.

40: Burdett, K., and M. Coles. 1997. Marriage and class. Quarterly Journal of Economics 112: 141-68.  

41. Shimer, R., and L. Smith. 2000. Assortative matching and search. Econometrica 68: 343-69.

42. Mortensen, D., and R. Wright. 2003. Competitive pricing and efficiency in search equilibrium. International Economic Review 43: 1-20.   

43. Shi, S. 2001. Frictional assignment, i: efficiency. Journal of Economic Theory 98: 232-260.

44. Shimer, R. 2005. The assignment of workers to jobs in an economy with search frictions. Journal of Political Economy 113: 996-1025.



I. Alternative Theories of Unemployment


45. Jovanovic, B. 1987. Work, rest and search. Journal of Labor Economics. 

46. Shimer. 2007. Mismatch. American Economic Review 97: 1074-1101.

47. Alvarez and Shimer. 2009. Search and Rest Unemployment. Unpublished Manuscript.

48. Lagos, R. 2000. An alternative approach to search frictions. Journal of Political Economy 108: 851-73.

49. Lucas, R., and E. Prescott. 1974. Equilibrium search and unemployment. Journal of Economic Theory 7: 188-209.



J. Labor Market Policy


50. Hopenhayn, H., and J. Nicolini. 1997. Optimal unemployment insurance. Journal of Political Economy 105: 412-438.

51. Acemoglu, D., and R. Shimer. 1999. Efficient unemployment insurance. Journal of Political Economy 107: 893-928.

52. Shimer, R., and I. Werning. 2008. Liquidity and Insurance for the Unemployed. American Economic Review 98: 1922-42.

53. Bertola, G., and R. Rogerson. 1997. Institutions and labour reallocation. European Economic Review 41: 1147-71.