Literature Review On The Unemployment Theory Of Mortensen And Its Inspiration To China’s Labor Market

How to understand and deal with unemployment problem correctly demands promptsolution which has been concerned by all governments around the world. The job searchand matching theory has become the main model of frictional unemployment in labormarket to reveal the impact of economic policies on unemployment. By sorting andrestating the theories of Mortensen D, this paper systematically analyses the job searchmodel of the labor market and the equilibrium relationships of economic parameters in themodel. The main goal of this paper is, through deep research on Mortensen’sunemployment theory, to understand the reason and mechanism of frictionalunemployment, and to explore the adverse effects of passive policies in labor market onunemployment. Then, taking the characteristics of China’s labor market into account, wecan gain some inspiration to improve the unemployment in China.Along with the study on the reason why there are different unemployment rates inEurope and USA, we do a systematic research on frictional unemployment and thebehavior of job search with the research perspectives and achievement of Mortensen.Furthermore, we discuss the mechanism of how economic policies influencesunemployment. After deep investigation on Mortensen’s unemployment research, wedivide his study into4parts. They are the study on the reason of frictional unemployment,the discrete analysis of equilibrium wage distribution, the research on changes of jobcreation and job destruction and the relationship between economic growth andequilibrium unemployment from macro perspective. Mainly based on the analysis ofequilibrium in labor market and impacts of passive policies, this paper highlights theeffects and leading role that government’s policies have on both the supply and demandparties in labor market.With systematic analysis of Mortensen’s theory, this paper analyzes the differencebetween Mortensen’s theory and other theories, the explanatory ability of unemploymenttheory and his effort on the empirical analysis. Moreover, we remark on the attribution ofhis theory and limitation.According to the above analysis, we come to conclusion that labor market policiesmust be appropriately used to decrease the frictional unemployment, without influencingthe efficiency and flexibility of labor market mechanism. The essential problem is tooptimize the mechanism of labor market, and ensure government policies appropriately to guide and support the mechanism.