Search, Unemployment, and the Beveridge Curve: Experimental Evidence

Abstract

We report on a laboratory experiment testing the predictions of the Diamond-Mortensen-Pissarides (DMP) search-and-matching model, which is a workhorse, decentralized model of unemployment and the labor market. We focus on the job vacancy posting problem that firms face in the DMP model. We explore comparative statics predictions concerning variations in the separation rate, the vacancy posting cost, and the firm's surplus earned per employee. Across all treatments, we find strong evidence for an inverse relationship between vacancies and unemployment, consistent with the Beveridge curve. We also find that the results of our various comparative statics exercises are in-line with the predictions of the theory.

Keywords: Unemployment, Beveridge curve, job search, matching, experimental economics

JEL Classification: J64, C92