Q.Explain about DMP model.

The DMP (Diamond–Mortensen–Pissarides) model is a search-and-matching theory showing that, because job search takes time and effort, unemployed workers and vacant jobs exist together; a matching function links them and explains frictional unemployment.

In the Tamil Nadu HSC Class-11 Economics syllabus, the DMP model is studied as a modern explanation of unemployment in labour markets.

1. Who and what. The model is named after Peter Diamond, Dale Mortensen and Christopher Pissarides, who were awarded the Nobel Prize in Economics in 2010 for their analysis of markets with search frictions.
2. Search frictions. In the real labour market, workers and employers cannot find each other instantly. Searching for a suitable job (by workers) and for a suitable worker (by firms) takes time, effort and cost. These are called search frictions.
3. The matching function. The model uses a matching function in which the number of new job-matches depends on the number of unemployed workers looking for jobs and the number of vacancies offered by firms. This is why, at any time, there are both unemployed workers and unfilled vacancies existing side by side. …