CONTEMPORARY ECONOMICS 305
costs money. The greater the
search costs, the wider the range
of wages for a similar job will be.
People looking for work realize that
wages differ between employers
and have to decide how far and
how long to search. Stigler’s
research showed that to conduct
an optimal search, workers should
reject any wage lower than their
“reservation wage” (the lowest they
are willing to accept), but accept
any offer above it. This model—of
drawing a line at an acceptable
level—works for searching in any
market, even dating agencies.
In 2010, economists Peter
Diamond, Dale Mortensen, and
Christopher Pissarides were jointly
awarded the Nobel Prize for their
work on search and matching theory.
Diamond found that even a tiny
increase in the cost of searching
leads to an increase in price of the
goods. Buyers are reluctant to pay
for a second or third search, so if
price rises are small in the place
they are searching, sellers know
that buyers will not notice because
they are not comparing them with
the results of other searches.
Searching and matching
theory has implications for the
efficient design of unemployment
benefits. Benefits without
conditions might reduce
incentives for job seekers to
search and to accept job offers.
But those that are designed in a
way that encourages searching
might help to improve the
efficiency of labor markets. ■See also: Free market economics 54–61 ■ Depressions and unemployment
15 4 – 61 ■ Rational expectations 244–47 ■ Sticky wages 303
In 2011, thousands of Spaniards
calling themselves los indignados
(the indignant), marched to
Brussels to protest against an
unemployment rate of 40 percent.Global
unemploymentWhile many people now work
in well-paid, satisfying jobs,
unemployment is persistently
high in some parts of the
world. Moreover, the market in
jobs is shifting, and good jobs
are vanishing even in richer
parts of the world.
In March, 2012, nearly half
of Spaniards and Greeks
under 25 were jobless, and
unemployment in South Africa
was running at nearly 30
percent. Even in the US,
employment climbed above
9.1 percent. This appears to
counteract the argument that
there are always jobs for those
prepared to take lower wages.
US economist Michael Phelps
argues that globalization is a
big factor in this because jobs
created in richer countries
tend to be in “non-tradable”
sectors such as government
and healthcare, while tradable
jobs (such as phone-making)
have moved to countries such
as China and the Philippines,
where wages are generally
low. Resolving problems like
these is one of the chief
concerns for economists today.Economists assume that
buyers and sellers
can always find each other
immediately...... and that buyers have easy
access to all the information
they need from all the sellers
within the market.Finding a job is like finding
a partner or a house.In the job market
individuals have to limit
their search to the vacancies
they can find within a certain
time and budget.But in reality this is not the
case, and the problem is made
worse if each search costs
time and money.