The revised model, in dispensing with money and deriving real. the models la Mortensen-Pissarides, explain the co-existence in equilibrium of unemployment and vacancies through frictions in matching workers and firms. For example, a longer job search often means that the searcher may be spending down savings and face an increasing risk of becoming destitute as the search lengthens. Christopher Pissarides provides a definitive introduction to the search model of the labor market. It has been recognised that unemployment has also a structural nature which persists over the business cycle. Risk aversion: Risk aversion can also play a part in search time. rate of unemployment as the level that would be ground out by a system of general equilibrium equations, provided those equations were able to capture.Review of Economic Studies 61, 397415, this paper shows that (1) severance pay negatively affects market tightness (vacancy to unemployment ratio) and (2) the amount of severance. Job creation and job destruction in the theory of unemployment. Greater variation can convince the seeker to hold out longer in their search expecting to find a superior alternative. Under the insider wage model of Mortensen and Pissarides Mortensen, D.T., Pissarides, C.A., 1994. Price and Quality Variance: The amount of variation in price and quality of offers will also influence the optimal search length.For example, if a worker’s skills may degrade or become obsolete over time, then they will tend to shorten their search for a new job. Costly Search: If there are costs that increase with the length of the search, optimal search time will tend to be shorter.Because they raise reservation wages, welfare and unemployment benefits may induce a qualified worker to sit at home and collect unemployment checks instead of seeking a job. 2000) became a standard text in the field. Pissarides: and policy, and his book Equilibrium Unemployment Theory (1990 2nd ed. For example, a buyer who has a fixed budget of $5,000 cash to spend on a car will search long enough to find a car of suitable quality for under $5,000. Other articles where Equilibrium Unemployment Theory is discussed: Christopher A. Reservation Price: The individual’s reservation price is the minimum they are willing to accept/maximum they are willing to pay.