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Complementarities and Substitutabilities in Matching Models

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  • Gabriele Cardullo

    (Facolta' di Economia, Universita' degli Studi di Genova)

Abstract

In a standard search and matching model the labor market presents frictions while in the competitive product market the demand is infinitely elastic. To have a more realistic framework, some macroeconomic models abandon the assumption of infinite elasticity and consider a two-tier productive scheme in the goods market. In this paper, it is shown that, under some reasonable assumptions about the final goods production function (for instance Cobb-Douglas technology) the unique equilibrium of this kind of model features no production and full unemployment, making them useless for any policy analysis. A comparison between the two frameworks shows that a standard matching model overestimates the impact in terms of employment of any policy intervention in the sector where such a policy has been promoted, while at the same time it ignores the effects that emerge in other sectors of the economy.

Suggested Citation

  • Gabriele Cardullo, 2008. "Complementarities and Substitutabilities in Matching Models," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 116(2), pages 159-177.
    • Handle: RePEc:vep:journl:y:2008:v:116:i:2:p:159-177
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    References listed on IDEAS

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    1. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, April.
    2. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(2), pages 217-227.
    3. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
    4. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627, Elsevier.
    5. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
    6. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-132, March.
    7. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
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    Cited by:

    1. Gabriele Cardullo & Bruno Van der Linden, 2007. "Employment Subsidies and Substitutable Skills: An Equilibrium Matching Approach," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 53(4), pages 375-404.
    2. Batyra, Anna & Sneessens, Henri R., 2010. "Selective reductions in labor taxation: Labor market adjustments and macroeconomic performance," Journal of Policy Modeling, Elsevier, vol. 32(4), pages 531-543, July.

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    More about this item

    Keywords

    Unemployment; search-matching equilibrium; labor market programs;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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