A Role for Search Theory

Despite the evidence that seems to undercut the search theory of unemployment, most economists, New Classical or not, would not want to give it up entirely. The reason is that job search and unemployment are so obviously and logically related.

Thinking back to an earlier chapter, we recall that economics recognizes three kinds of unemployment:

  1. Frictional unemployment.
  2. Cyclical unemployment.
  3. Structural unemployment.

At the least, the search theory seems to be a good model of frictional unemployment. Keynesian economists have been more interested in cyclical unemployment, though. Perhaps it really is true that the Keynesians and the New Classical economists have been "talking past one another" -- talking about different things, and not really contradicting one another, except in interpretation.

Since no-one wants to give up the search theory of unemployment, let's take a closer look at the economics of unemployment and job search.


Next:Changes in Unemployment
Copyright