Search-Theoretic Models of the Labor Market: A Survey

Abstract

This essay provides a survey of various models that use search theory to analyze labor markets. By search theory, we mean a framework in which trading frictions are modeled explicitly. Search models generate unemployment as an equilibrium outcome, and also allow us to discuss various ways in which wages and other prices are determined by agents in the model. We present the basic single-agent search problem in a variety of different forms. We describe the endogenous determination of the wage distribution. We present some simple equilibrium models of the labor market and discuss some machinery that is common in such models, including the notion of a matching technology, as well as basic bargaining theory. We present a version that is designed explicitly to analyze job creation and destruction.