Search theory models frictional unemployment by studying how job seekers and employers search for, evaluate, and match with one another.
Unlike a frictionless labor-market model, search theory recognizes that workers and vacancies are heterogeneous and that information is incomplete. A worker may need time to learn about openings, compare wages and conditions, and decide whether to accept an offer. Employers likewise spend time and resources advertising jobs, screening applicants, and identifying suitable matches. Those delays can leave vacancies and unemployed workers existing at the same time.
The theory also uses ideas such as reservation wages: a job seeker may reject an offer below the value of continuing the search. In modern labor economics, search theory is often combined with matching models that describe how contacts between workers and firms become hires. The Beveridge curve, which relates unemployment and vacancies, is closely connected to this framework.
The subject gained major recognition through the 2010 Nobel Memorial Prize in Economic Sciences, awarded to Peter Diamond, Dale Mortensen, and Christopher Pissarides for work on markets with search frictions. Search theory is broader than unemployment alone; it can also analyze buyers, sellers, housing, and other markets where finding a partner takes time.