Essays on the macroeconomics of labor markets

This dissertation is a collection of three essays on the theoretical and the empirical aspects of the labor search theory.;Essay 1 presents a two sector search model to explain the observed positive correlation between productivity and unemployment in the United States. The paper concludes that the positive correlation between unemployment and productivity can be explained by substantial sectoral shifts in the economy along with productivity changes. Traditional one sector search framework cannot account for changes in vacancies and unemployment caused by sector specific shocks because there is no mechanism by which changes in one sector can spillover to other sectors. Whereas economies are multi sector and often changes in one sector spillover to other sectors through changes in wages and hence in turn changes resource allocations and preferences. These intersectoral spillover effects are captured in a two sector search framework. I have analyzed the model under the random search and the sector specific search framework.;In essay 2, the two sector model developed in essay 1, is extended by introducing endogenous flow capital. Interestingly, with perfectly mobile capital markets, the productivity shocks have no impact on the vacancies and the unemployment both under the random search and the sector specific search frameworks. The standard results with respect to change in consumer preferences and bargaining power of the workers remains same.;Finally, in the last essay, I estimated the matching function for the United States using a new set of data called Job Opening and Labor Turnover Survey (JOLTS) collected by the Bureau of Labor Statistics. Matching function is one of the key elements of the modern search theory and its stability over time has important policy implications. Using the JOLTS data from the period December 2000 to March 2009, I have shown that the standard Constant Returns to Scale assumption for the Matching function only holds for the non-recessionary time periods. During recessions, the Matching function exhibits decreasing returns to scale.