Abstract

This lecture describes the search and matching model of the labour market that was awarded the Nobel prize in Economics in 2010. It briefly describes the contributions of each of the three laureates, which were largely independently done, concluding with the statement of the full model. It then applies the model to some key issues in labour markets. It first shows that the model can be used to compare the performance of a labour market over time and across countries, using examples from real economies. It then discusses wage setting, showing that wages may not be fully flexible. Finally, it discusses the policy of employment protection legislation and its implications for job creation and unemployment.