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To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1468-0335.2010.00861.x Byline: CHRISTOPHER A. PISSARIDES ([dagger]) Abstract: This paper derives optimal employment contracts when workers are risk-averse and there are employment and unemployment risks. Without income insurance, consumption rises during employment and falls during unemployment. Optimal employment contracts offer severance compensation and sometimes give notice before dismissal. Severance compensation smooths consumption during employment, and dismissal delays insure partially against the unemployment risk because of moral hazard. During the delay, consumption falls to give incentives to the worker to search for another job. No dismissal delays are optimal if exogenous unemployment compensation is sufficiently generous. Author Affiliation: ([dagger])Centre for Economic Performance, London School of Economics, IZA and CEPR Article History: Final version received 13 January 2010.

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.3982/ECTA7562 Byline: Christopher A. Pissarides (*) Keywords: Unemployment volatility puzzle; wage stickiness; search and matching; Nash wage equation Abstract: I discuss the failure of the canonical search and matching model to match the cyclical volatility in the job finding rate. I show that job creation in the model is influenced by wages in new matches. I summarize microeconometric evidence and find that wages in new matches are volatile and consistent with the model's key predictions. Therefore, explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages. I discuss a modification of the model, based on fixed matching costs, that can increase cyclical unemployment volatility and is consistent with wage flexibility in new matches. Author Affiliation: (*)Centre for Economic Performance, London School of Economics, Houghton Street, London WC2A 2AE, U.K. and IZA, Bonn and CEPR, London;c.pissarides@lse.ac.uk Article History: Manuscript received November, 2007; final revision received November, 2008.

The role of inflows and outflows to the dynamics of unemployment in the UK, France, and Spain is examined. Administrative and labor force survey data are used for this study.

To purchase or authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1468-2354.2007.00439.x Byline: Christopher A. Pissarides ([dagger]), Giovanna Vallanti (1) Abstract: Theoretical predictions of the impact of total factor productivity (TFP) growth on unemployment are ambiguous, and depend on the extent to which new technology is embodied in new jobs. We evaluate a model with embodied and disembodied technology, capitalization, and creative destruction effects. In econometric estimates with a panel of industrial countries we find a large negative impact of TFP growth on unemployment, which implies that embodied technology and creative destruction play no role in the steady-state dynamics of unemployment. Capitalization effects explain some of the estimated impact but a part remains unexplained. Author Affiliation: ([dagger])Centre for Economic Performance, London School of Economics, U.K.,IZA, Germany; Universita Luiss 'Guido Carli,' Italy

Implications of the state in which industrial employment shares change over time are discussed on the basis of production inputs. Constant total factor productivity (TFP) growth in the manufacturing sector creates a balanced aggregate growth path, thus promoting structural change.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.euroecorev.2005.11.005 Byline: Costas Azariadis (a), Christopher A. Pissarides (b) Abstract: We study the response of domestic unemployment rates to shocks in total factor productivity for economies with high capital mobility and low labour mobility. We show that high capital mobility amplifies the impact on the domestic unemployment rate of domestic fluctuations in total factor productivity, shortens the lag of the response to shocks and raises the variability of unemployment. But average unemployment is unaffected. Capital flows increase the riskiness of labour income and reduce the riskiness of capital income but do not reduce mean welfare. Author Affiliation: (a) University of California, Los Angeles, USA (b) Centre for Economic Performance, London School of Economics and CEPR, UK Article History: Received 13 April 2004; Accepted 21 November 2005

Research is presented describing the history and development of matching functions in the analysis of labor market surveys and the impact of frictions on supply.

I model and simulate the effects of employment tax cuts on unemployment and wages in four equilibrium models: competitive, union bargaining, search and efficiency wages. I find that if the ratio of unemployment compensation to wages is fixed, the effect of the tax cut is mainly on wages. But if income out of work is fixed in real terms, there are substantial employment effects. When wages are determined by bargaining, revenue-neutral reforms that make the tax more progressive also reduce unemployment. Thus, policy towards unemployment compensation and tax structure are key influences on the effect of taxes on unemployment.

This paper considers evidence from the Labour Force Survey concerning job search by employed workers. The unconditional probability of observing on-the-job search is decomposed into the product of two constituent probabilities upon which maximum likelihood estimation is performed. The analysis facilitates the identification of who searches and whether search takes place in work or from unemployment. Temporary or part-time employment encourages continued search by men but not women. Skilled workers search more than the unskilled and demonstrate a preference for employed search. Inter-industry wage relativities encourage search on-the-job. Job tenure is a significant determinant of the quality of a job match and the subsequent likelihood that on-the-job search is undertaken. Employed job seekers adopt search strategies that are more readily integrated into a working environment.

Using a standard overlapping generations framework modified to incorporate matching frictions in the labour market and a technology capable of yielding unbounded endogenous growth, we show that the cross-country bivariate correlation between unemployment and growth can be either positive or negative depending on the source of the differences in economic structures across countries. We also present a two-sector variant of the model in which there is imperfect competition in consumption goods production. A reduction in the propensity to save leads to an expansion in the market size for consumption goods, and an increase in employment. If entry costs into consumption goods production are sufficiently large this expansion in employment can be big enough to produce an increase in the total volume of saving - and therefore growth - even though the propensity to save has decreased.

This paper shows that when unemployed workers lose some of their skills, the effects of a temporary shock to employment can persist for a long time. The key mechanism is a thin market externality that reduces the supply of jobs when the duration of unemployment increases. The paper develops an overlapping-generations model of search equilibrium and shows that different patterns of persistence and multiple equilibria are possible even with constant returns production and matching technologies.

This paper estimates a three-equation model of the Australian labour market, for employment, real wages and the participation rate. It uses the model to study the role of incomes policies in containing real wage growth and the reasons behind the changes in unemployment since 1970. It finds that incomes policies have not been important in controlling real wages; the rise in unemployment in the 1970s was due to the rise in tax rates and unemployment benefits; the changes in unemployment in the 1980s were connected with changes in investment and aggregate demand.

Estimates of aggregate matching functions may miss important scale effects in frictional labour markets because of the reactions of job seekers to scale. We estimate a semi-structural model of search and matching on a British sample of unemployed people, testing for scale effects on the probability of receiving an offer and on the distribution of wage offers. We find them only in wage offers but we also find that reservation wages rise to deliver higher post-unemployment wages but not faster matches. So aggregate matching functions should be unaffected by scale but wage equations should be showing them.

We study the effects of business start-up costs on employment, in a model with managers, workers and matching. We show that higher start-up costs discourage entrepreneurs and increase the fraction of the population who become workers. Job creation suffers and employment settles at a lower level. We illustrate with evidence from major OECD economies, where large variations in start-up costs are correlated with large variations in employment levels. [C] 2001 Elsevier Science B.V. All rights reserved. JEL classification: E24; J23; J63 Keywords: Managers; Search; Matching; Start-up costs; Job creation

This paper discusses some issues in the theory of unemployment. It proposes a framework for the analysis of unemployment and finally applies the framework to the analysis of the rise in unemployment in Britain after 1979. The framework is based on bilateral monopoly in the labour market, and the explanation for the rise in unemployment in Britain rests primarily with a demand-side shock, which caused the rise in 1980-81, and supply-side persistence, which has kept unemployment up since then.

The role played by labor policy in the large increase in unemployment rates in Europe and the US in the late 1970s and the 1980s were reexamined based on the interpretation of the Mortensen and Pissarides model of equilibrium unemployment framework on the employment and wage experience of OECD members. The research suggests that much of the differential changes in unemployment rates in both countries are attributable to the skill-biased technology shocks that cause the rise in labor productivities that are interacting with various policies.