Search Frictions, Efficiency Wages and Equilibrium Unemployment

Christopher Martin, Bingsong Wang

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Abstract

This paper explores the decomposition of equilibrium unemployment into involuntary and frictional components using a model that combines eciency wages with search and matching frictions in the labour market. In deriving our results we generalise the celebrated Solow Condition, expressing the wage as the sum of a pure eciency wage component and a component that reflects search frictions. Using standard values of calibrated parameters, we find that the bulk of unemployment is involuntary.
Original languageEnglish
Article number2
Pages (from-to)45-54
Number of pages10
JournalReview of Economic Analysis
Volume10
Publication statusPublished - 2018

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