Search and Matching
What is Search and Matching?
Search and matching is the framework in which unemployment persists because it takes time and effort for job seekers and vacancies to find each other.
A plain supply and demand picture of the labor market implies that anyone willing to work at the going wage is employed instantly, and search theory drops that assumption. Workers and jobs differ, information is incomplete, and both sides spend time and money looking, so unemployed workers and unfilled vacancies sit side by side. A matching function turns the pool of searchers and the pool of vacancies into hires per period, and the frictional unemployment that results does not vanish even in a strong labor market. Workers accept an offer once it clears their reservation wage, and firms post vacancies until the expected cost of filling one equals the expected gain. The Beveridge curve, which plots vacancies against unemployment, is the standard summary: when it shifts outward, the same number of vacancies coexists with more unemployment, a sign that matching has become less efficient.
Search and Matching: a worked example
Suppose 5 million people are searching for work, 4 million vacancies are posted, and 2 million hires happen in a month. The job finding rate is 2 divided by 5, or 40 percent a month, so an average spell of unemployment runs about 1 divided by 0.4, or 2.5 months. The vacancy filling rate is 2 divided by 4, or 50 percent. Now suppose matching worsens, perhaps because the openings are in different cities from the searchers, and only 1 million hires come out of the same two pools. The finding rate halves to 20 percent and the average spell doubles to 5 months, with no change in the number of jobs on offer.
The mistake students make with search and matching
Students assume unemployment always means there are not enough jobs. Search models show unemployed workers and unfilled vacancies at the same time, because hiring takes time and not every worker fits every opening. A second error is treating all search unemployment as waste. Some searching is productive, since a worker who takes a few extra weeks to find a job that fits produces more and stays longer than one who grabs the first offer.
Search and Matching questions
Why does unemployment exist when there are job openings?
Unemployment and vacancies coexist because matching a specific worker to a specific job takes time, information and often relocation. Openings and searchers differ by skill, location and schedule, so neither pool clears instantly. The standard formal treatment is the Diamond, Mortensen and Pissarides model, which builds unemployment out of these frictions rather than out of a shortage of jobs.
What is the Beveridge curve?
The Beveridge curve plots job vacancies against the unemployment rate and normally slopes downward, so high vacancies go with low unemployment. Movements along the curve track the business cycle. A shift outward, meaning more vacancies at every unemployment rate, indicates that matching has become less efficient, often because of skill or geographic mismatch.
Is search unemployment the same as structural unemployment?
No, search or frictional unemployment is the time cost of finding a match that exists, while structural unemployment means a worker's skills or location do not fit the available jobs at all. More searching eventually solves the first, whereas the second usually requires retraining or moving. The line between them blurs when mismatch is severe and lasting.
Formula / Example
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