Models and theories in a frictions and wage rigidities labor market

• Main Authors: Cristian MARINESCU, Dumitru Alexandru BODISLAV
• Format: Article
• Language: English
• Published: General Association of Economists from Romania 2019-03-01
• Series: Theoretical and Applied Economics
• Subjects: labor market; wage rigidities
• Online Access: http://store.ectap.ro/articole/1375.pdf

Unlike the classic market vision, where demand and supply meet immediately, at no cost, and prices are determined in such a way that demand equals supply, in the real world frictions occur in the searching process, the price offers of one of the parties are considered too high, be it the goods or services market, the real estate market or the labor market, so there are imbalances that vary over time, excess supply or excess demand. In this paper we aim to present the main models and theories in a labor market characterized by friction and wage rigidity, starting from contributions in the field of “frictions on search-based markets” by Peter A. Diamond, as well as from works belonging to economists Dale T. Mortensen and Christopher A. Pissarides, who developed and adapted the Diamond model to make it applicable to the labor market, thus resulting in one of the most used models for the analysis of unemployment and wage formation.