In chapter 1, “Ten Principles of Economics,” Mankiw enumerates ten principles of economics, the first of which is that people face tradeoffs. A very good article by Karl Ritter and Louise Nordstrom, AP writers published in the Chicago Tribune, “2 Americans, British-Cypriot win Nobel economics prize for job market analysis” describe a positive conclusion as stating
"One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times," the academy said.A second conclusion is that the longer search time leads to a better matching of jobs to laborers. The trade-off is the cost of the benefits for for more efficient job allocations.
Diamond wrote a paper in the early 1980s that found that unemployment compensation can lead to better job matches. Workers "become more selective in the jobs they accept" because of the employment aid. And, that makes for better matches and increases efficiency, he found.A second conclusion is that longer periods of unemployment lead to a disconnection with labor markets. The trade-off is the loss of contact with the labor market that is part of the cost of finding a more efficient job match.
"One of the key things we found is that it is important to make sure that people do not stay unemployed too long so they don't lose their feel for the labor force," Pissarides told reporters in London. "The ways of dealing with this need not be expensive training — it could be as simple as providing work experience."