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Consider the following wage search model:




Problem 3 ? Unemployment;Consider the following wage search model: During a period an unemployed worker receives one wage offer with probability?. With probability 1??, the unemployed worker does not receive an offer. The wage offer is drawn from the wage offer distribution F(w) which is assumed to be uniform over the interval [0,100]. Specifically this implies that the probability of receiving an offer w? less than or equal to some level w is Pr(w?? w) = w/100. During any period, an employed worker loses her job with probability?. For any given reservation wage R such that unemployed workers reject offers below R and accept offers above R, determine the steady state unemployment rate using the logic of the bathtub model. Use your answer to calculate the unemployment rate for? = 0.017,? = 0.5, and R = 35.


Paper#27111 | Written in 18-Jul-2015

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