The fundamental surplus

Lars Ljungqvist, Thomas Sargent

    Research output: Contribution to journalArticle

    Abstract

    To generate big responses of unemployment to productivity changes, researchers have reconfigured matching models in various ways: by elevating the utility of leisure, by making wages sticky, by assuming alternating-offer wage bargaining, by introducing costly acquisition of credit, by assuming fixed matching costs, or by positing government-mandated unemployment compensation and layoff costs. All of these redesigned matching models increase responses of unemployment to movements in productivity by diminishing the fundamental surplus fraction, an upper bound on the fraction of a job's output that the invisible hand can allocate to vacancy creation. Business cycles and welfare state dynamics of an entire class of reconfigured matching models all operate through this common channel.

    Original languageEnglish (US)
    Pages (from-to)2630-2665
    Number of pages36
    JournalAmerican Economic Review
    Volume107
    Issue number9
    DOIs
    StatePublished - Sep 1 2017

    Fingerprint

    Surplus
    Matching model
    Costs
    Unemployment
    Government
    Productivity change
    Vacancy
    Welfare state
    Business cycles
    Sticky wages
    Upper bound
    Credit
    Unemployment compensation
    Productivity
    Alternating offers
    Leisure
    Wage bargaining

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Ljungqvist, L., & Sargent, T. (2017). The fundamental surplus. American Economic Review, 107(9), 2630-2665. https://doi.org/10.1257/aer.20150233

    The fundamental surplus. / Ljungqvist, Lars; Sargent, Thomas.

    In: American Economic Review, Vol. 107, No. 9, 01.09.2017, p. 2630-2665.

    Research output: Contribution to journalArticle

    Ljungqvist, L & Sargent, T 2017, 'The fundamental surplus', American Economic Review, vol. 107, no. 9, pp. 2630-2665. https://doi.org/10.1257/aer.20150233
    Ljungqvist L, Sargent T. The fundamental surplus. American Economic Review. 2017 Sep 1;107(9):2630-2665. https://doi.org/10.1257/aer.20150233
    Ljungqvist, Lars ; Sargent, Thomas. / The fundamental surplus. In: American Economic Review. 2017 ; Vol. 107, No. 9. pp. 2630-2665.
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