The ‘Matching functions’ mentioined in the quote explain unemployment by assuming that finding a job or a worker takes time. And this does explain unemployment – part of it (2%-point?). The rest must be explained by crises and the inability of the market system to create jobs. As is clear from comparing graph 2, short-lived crises cause lower levels of job creation and higher levels of job destruction. Basically, these swings are not even that large. But together they lead to a fast increase in unemployment which take years to overcome. Sargent and Ljundqvist did re-invent the wheel. If they had red Rodbertus, Sismondi, Marx, Owen or Mitchell they would have known.
Fun fact: the neoclassical ‘DSGE’ model of Bokan e.a. distinguishes a class of bankers, a class of entrepreneurs (let’s call them ‘capitalists’, as they own all the capital) and a class of households which have nothing else to sell than their labour… The model knows a ‘positive wage mark-up’ but change this into a ‘wage mark down’ (for instance caused by ‘monpsonie’ on the labor market, i.e. by strong labor market power of employers, and it’s starting to look pretty Marxist, too.Real-World Economics Review Blog
Thomas Sargent discovered his inner Marxist. Really. Two graphs.
Merijn Knibbe
