1
00:00:01,136 --> 00:00:02,136
>> Okay. Let's wrap up.

2
00:00:02,486 --> 00:00:04,596
We've developed a theory
in terms of a model

3
00:00:04,846 --> 00:00:06,916
that represents how
individuals look for work.

4
00:00:07,296 --> 00:00:09,716
Any individual gets
offers randomly over time.

5
00:00:09,796 --> 00:00:11,326
And when they're
acceptable, they transit

6
00:00:11,326 --> 00:00:12,856
from unemployment to employment.

7
00:00:13,446 --> 00:00:15,526
While working, sometimes
they have the misfortune

8
00:00:15,526 --> 00:00:17,616
of being laid off and transit
in the other direction.

9
00:00:18,096 --> 00:00:19,616
This theory can be used to talk

10
00:00:19,616 --> 00:00:21,866
about the unemployment
rate in the economy.

11
00:00:22,186 --> 00:00:24,176
At any point in time,
there will be some fraction

12
00:00:24,176 --> 00:00:26,596
of the population working and
some fraction not working,

13
00:00:26,916 --> 00:00:28,536
and people will move
back and forth.

14
00:00:28,746 --> 00:00:29,586
But the system tends

15
00:00:29,586 --> 00:00:32,056
to gravitate towards the
natural rate of employment

16
00:00:32,376 --> 00:00:33,696
which stays constant over time,

17
00:00:34,066 --> 00:00:36,326
even though individuals
are moving back and forth.

18
00:00:37,336 --> 00:00:39,366
This looks a lot different
from the classical theory.

19
00:00:39,366 --> 00:00:41,046
There's no supply
and demand diagrams,

20
00:00:41,306 --> 00:00:43,286
although they are
related - workers looking

21
00:00:43,286 --> 00:00:44,906
for work are supplying labor.

22
00:00:45,136 --> 00:00:47,226
The interesting thing
about search theory is

23
00:00:47,226 --> 00:00:49,026
that search is a
productive activity.

24
00:00:49,536 --> 00:00:51,296
Holding out for a
better job is good.

25
00:00:51,716 --> 00:00:53,066
Now, you don't want
to hold out forever.

26
00:00:53,066 --> 00:00:53,886
At some point, you've got

27
00:00:53,886 --> 00:00:55,326
to stop searching
and start working.

28
00:00:55,706 --> 00:00:59,096
We determined theoretically
exactly what you should do:

29
00:00:59,236 --> 00:01:03,016
choose a reservation wage and
accept when a job gives an offer

30
00:01:03,016 --> 00:01:04,386
above the reservation wage.

31
00:01:04,986 --> 00:01:08,336
It's still not all the way there
vis-a-vis the classical theory,

32
00:01:08,336 --> 00:01:11,046
because we've got
workers looking for jobs.

33
00:01:11,386 --> 00:01:13,066
We still want to build
in the other side

34
00:01:13,066 --> 00:01:14,776
of having firms looking
for workers.

35
00:01:14,776 --> 00:01:15,976
That's the subject
of the next lecture.

36
00:01:16,516 --> 00:01:24,500
[ Music ]