In the two-sided search model, an increase in matching efficiency, e, could help high unemployment when there is
A) demographic changes.
B) a large degree of mismatch.
C) high labour force participation.
D) an increase in aggregate economic activity.
E) low labour force participation.

Question

Quizplus · Accepted Answer

In the two-sided search model, matching efficiency refers to the ease with which firms and workers can find each other. An increase in matching efficiency would facilitate the matching process, which could help alleviate high unemployment when there is a large degree of mismatch between the skills of job seekers and the requirements of available jobs. Mismatch occurs when there is a disparity between the characteristics of job seekers (such as education, experience, or location) and those of job openings. When there is a significant degree of mismatch, even if there are many job openings and many job seekers, it may be difficult to find suitable matches. By increasing matching efficiency, the model can help reduce the time and resources required for matching, and thus lower unemployment.

In the Two-Sided Search Model, an Increase in Matching Efficiency