1. New Challenges in Economic Research Plenary Session I: Labor Economics Introduction Bruno Van der Linden

2. New Challenges in Economic Research Some basic facts  Job vacancies and unemployment coexist Frictional phenomenon But also long-lasting reality: e.g. long-term unemployment  The “Beveridge curve”: negative correlation between unemployment and vacancies at business cycle frequencies

3. New Challenges in Economic Research Some basic facts  Stable relationship between The rate at which the unemployed find a job And the vacancy-unemployment ratio (also called “tightness” on the labor market)  “Wage dispersion” Similar workers paid differently

4. New Challenges in Economic Research Why is it so?  The “disequilibrium approach” developed to understand the pervasive unemployment problem in Europe: Aggregation over micro-markets i where L i = Min (LC i, LD i,LS i ) can lead to a stable Beveridge curve (Drèze, Lambert, Sneessens)

5. New Challenges in Economic Research Why is it so?  The equilibrium search-matching approach to which Dale Mortensen has contributed a lot “Equilibrium search models” (Burdett, Mortensen) oThe job-search model with on-the-job search oWage often posted by firms “Matching models” (Mortensen, Pissarides) oA “matching function” oOften ex-post wage bargaining

6. New Challenges in Economic Research The “equilibrium search-matching” models explain the above facts rather well...... But are criticized for several reasons:  Too simple employment contracts Recent extensions  The “matching function” is a reduced form: Is it invariant to policy changes? Uncoordinated random application by job- seekers (“urn-ball” models of Hall, Butters) Shimer (AER 2007), Mortensen (2007)

7. New Challenges in Economic Research Other critiques  Shimer (AER, 2005): the standard matching model only explains 10% of the volatility of the vacancy-unemployment ratio. Answers? (Recent survey by G. Cardullo) A matter of calibration (dubious) Alternatives to the Nash bargaining (unsettled) Enriching the standard model (Mortensen and Nagypal, Krause and Lubik, Silva and Toledo...)

8. New Challenges in Economic Research  Today’s lecture of Prof. Mortensen can be seen as part of a research program Aim: the building of a “new generation of equilibrium search-matching models” Origin: Phelps (1969) (“island economy”) Lucas and Prescott (1974)

9. New Challenges in Economic Research