Christopher Pissarides

Bio: Christopher Pissarides is an academic researcher from London School of Economics and Political Science. The author has contributed to research in topics: Unemployment & Wage. The author has an hindex of 60, co-authored 201 publications receiving 27327 citations. Previous affiliations of Christopher Pissarides include Centre for Economic Performance & National Bureau of Economic Research.

Job Creation and Job Destruction in the Theory of Unemployment

Abstract: In this paper we model a job-specific shock process in the matching model of unemployment with non-cooperative wage behaviour. We obtain endogenous job creation and job destruction processes and study their properties. We show that an aggregate shock induces negative correlation between job creation and job destruction whereas a dispersion shock induces positive correlation. The job destruction process is shown to have more volatile dynamics than the job creation process. In simulations we show that an aggregate shock process proxies reasonably well the cyclical behaviour of job creation and job destruction in the United States.

Equilibrium Unemployment Theory

Abstract: Part 1 Unemployment in the model of balanced growth: the labour market long-run equilibrium and balanced growth adjustment dynamics. Part 2 further ananlysis of the labour market: search intensity and job advertising.

Looking into the Black Box: A Survey of the Matching Function

Abstract: This paper surveys the microfoundations, empirical evidence, and estimation issues underlying the aggregate matching function. There is no consensus yet on microfoundations but one is emerging on estimation. An aggregate, constant returns, Cobb-Douglas matching function with hires as a function of vacancies and unemployment has been successfully estimated for several countries. Recent work has utilized disaggregated data to go beyond aggregate estimates, with many refinements and suggestions for future research. The paper discusses spatial aggregation issues, and implications of on-the-job search and of the timing of stocks and flows for estimated matching functions.

Equilibrium Unemployment Theory, 2nd Edition

Abstract: An equilibrium theory of unemployment assumes that firms and workers maximize their payoffs under rational expectations and that wages are determined to exploit the private gains from trade. This book focuses on the modeling of the transitions in and out of unemployment, given the stochastic processes that break up jobs and lead to the formation of new jobs, and on the implications of this approach for macroeconomic equilibrium and for the efficiency of the labor market. This approach to labor market equilibrium and unemployment has been successful in explaining the determinants of the "natural" rate of unemployment and new data on job and worker flows, in modeling the labor market in equilibrium business cycle and growth models, and in analyzing welfare policy. The second edition contains two new chapters, one on endogenous job destruction and one on search on the job and job-to-job quitting. The rest of the book has been extensively rewritten and, in several cases, simplified.

Short-run equilibrium dynamics of unemployment vacancies, and real wages

Abstract: In this paper, I study the dynamics of adjustment in a labor market, following an exogenous shock to the real value of output. Some of the stylized facts of business cycles, with which the predictions of the model are consistent, include first, real wages do not fully reflect fluctuations in the real value of labor's marginal product, so real profits fluctuate more than real wages. Second, unemployment responds to output shocks, but its response is slow. Finally, in countries where there are good data on vacancies, like Britain, we observe that vacancies respond more quickly to shocks and with greater amplitude than unemployment. Several authors have constructed models to explain why output shocks are absorbed partly by real wages and partly by unemployment (the empirical regularity in the United States is discussed by Robert Hall, 1980). Implicit contract models (Costas Azariadis, 1979; Oliver Hart, 1983) have successfully explained why real wages may not reflect output shocks, and the models with asymmetric information and severance pay have also had some success in explaining fluctuations in unemployment. Bargaining models (Ian McDonald and Robert Solow, 1981) and efficiency wage models (Janet Yellen, 1984) appear to be more successful in explaining fluctuations in unemployment, but formalizations are still in their infancy. The models have not yet been subjected to the same scrutiny as implicit contract and earlier models. One feature shared by all these models is that they are static. They explain how real wages and employment respond to shocks in a comparative-static framework but say nothing about the adjustment path from one equilibrium to the next. Also, the models say nothing about job vacancies, either in equilibrium or during the adjustment process. By contrast, this paper takes the view that by modeling job vacancies explicitly, one can learn more about the behavior of unemployment and real wages, both in equilibrium and during the adjustment to equilibrium. Thus, the model developed below is explicitly dynamic, and in it job vacancies play a critical role in the transmission of output shocks to real wages and unemployment. A job vacancy indicates a willingness by a firm to hire a worker.' It is equivalent to unemployment of capital, so just as workers move between the states of employment and unemployment, jobs move between the states of occupancy and vacancy. I model the interaction of vacancies and unemployment by using ideas from equilibrium search theory, where there is continuous wage recontracting and perfect anticipation of the adjustment paths of all endogenous variables. Job vacancies enter the model via their influence on job contacts, which depend on the number of firms looking for workers. Some firms may not wish to hire and so they may not be actively engaged in the search process. Only firms with job vacancies are actively engaged in search, so the number of job contacts and

Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework

Abstract: This paper develops a class of recursive, but not necessarily expected utility, preferences over intertemporal consumption lotteries An important feature of these general preferences is that they permit risk attitudes to be disentangled from the degree of intertemporal substitutability Moreover, in an infinite horizon, representative agent context these preference specifications lead to a model of asset returns in which appropriate versions of both the atemporal CAPM and the intertemporal consumption-CAPM are nested as special cases In our general model, systematic risk of an asset is determined by covariance with both the return to the market portfolio and consumption growth, while in each of the existing models only one of these factors plays a role This result is achieved despite the homotheticity of preferences and the separability of consumption and portfolio decisions Two other auxiliary analytical contributions which are of independent interest are the proofs of (i) the existence of recursive intertemporal utility functions, and (ii) the existence of optima to corresponding optimization problems In proving (i), it is necessary to define a suitable domain for utility functions This is achieved by extending the formulation of the space of temporal lotteries in Kreps and Porteus (1978) to an infinite horizon framework A final contribution is the integration into a temporal setting of a broad class of atemporal non-expected utility theories For homogeneous members of the class due to Chew (1985) and Dekel (1986), the corresponding intertemporal asset pricing model is derived

Economics of Information

Abstract: The author systematically examines one of the important issues of information — establishing the market price. He introduces the concept of «search» — where a buyer wanting to get a better price, is forced to question sellers. The article deals with various aspects of finding the necessary information.

Job Creation and Job Destruction in the Theory of Unemployment

Abstract: In this paper we model a job-specific shock process in the matching model of unemployment with non-cooperative wage behaviour. We obtain endogenous job creation and job destruction processes and study their properties. We show that an aggregate shock induces negative correlation between job creation and job destruction whereas a dispersion shock induces positive correlation. The job destruction process is shown to have more volatile dynamics than the job creation process. In simulations we show that an aggregate shock process proxies reasonably well the cyclical behaviour of job creation and job destruction in the United States.

Equilibrium Unemployment Theory

Abstract: Part 1 Unemployment in the model of balanced growth: the labour market long-run equilibrium and balanced growth adjustment dynamics. Part 2 further ananlysis of the labour market: search intensity and job advertising.