Teaching two-sided labor search theory to undergraduates: A model and some exercises

Although the Diamond-Mortensen-Pissarides (DMP) model originated roughly 40 years ago and its authors shared the 2010 Nobel Memorial Prize in Economic Sciences, their work is still absent from several recent editions of popular intermediate macroeconomics textbooks. In contrast, Stephen Williamson's textbook (2014, 2018) presents an early static version of the DMP model accessible to undergraduates. This article's author compensates for the topic's omission in some intermediate-level textbooks by discussing Williamson's static DMP model and presenting four additional exercises not covered in his main text: (1) a change in a vacancy's posting price; (2) an increase in workers' relative bargaining power; (3) the introduction of a minimum wage; and (4) the introduction of an endogenous unemployment insurance benefit. The latter exercise yields an interesting neutrality result.