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Notes on "Labor Markets and Monetary

By Sam Schulhofer-wohl and Robert Shimer


Policy " ∗ These notes assume that the reader is familiar with the canonical Diamond-Mortensen-Pissarides (DMP) model with Nash bargaining. The details of the model — and derivations of the steady-state equilibrium conditions — are available in a number of articles and textbooks. Personally, I’ve benefited from reading Shimer (2005) and Mortensen and Nagypal (2007). Throughout my talk, and in these notes, I abstract from the potentially importantissueoffirm search intensity. Davis, Faberman, and Haltiwanger (2010) argue that firms are expending less effortin2010thantheydidin 2007 to fill a given job vacancy. If their argument is correct, then the labor market is actually slacker than is indicated by the December 2010 observation on (v/u). This extra slack would generate higher estimates for the benefits of job creation and lower estimates for u ∗ , for any value of (p − z). Slide on Benefits of Job Creation: The approximation on this slide can be derived as follows. The steady-state version of the firm’s job-creation first-order condition is k = q(θ)(1 − β)V V = p − z r + s + βf(θ), where r represents the discount rate, s is the separation rate, θ = v/u, f(θ) is the job-finding rate, and q(θ) =f(θ)/θ. We can substitute for V to get k = q(θ)(1 − β)(p − z) r + s + βf(θ

Year: 2011
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