The search and matching model of unemployment tells us that:

For consumers:searching for work becomes more attractive the higher the market wage (w), the higher is labour market tightness (j), and the higher is unemployment insurance benefit (b).

For firms: posting vacancies become more attractive the lower is the cost of posting a vacancy (k), the lower is labour market tightness (j), the higher is productivity (z), the lower is market wage (w).

In the wake of the COVID-19 pandemic, the unemployment rate in Canada has jumped from 7.8% in March to 13.7% in May (latest data point available seehttps://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1410028701). The participation rate has declined from 63.5% to 61.4% and the employment rate has declined from 58.5% to 52.9%, during the same period.

Using the search and matching model, explain the statistics above by a discussion of how COVID-19 may have impacted the key model variables:

• number of firms (A) and workers searching (N)
• market wage (w)
• labour market tightness (j)
• unemployment insurance benefit (b)
• cost of posting a vacancy (k)
• productivity (z)