Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 99: An Equilibrium Model of Search Unemployment

James W Albrecht and Bo Axell
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James W Albrecht: New York University
Bo Axell: Research Institute of Industrial Economics (IFN)

Abstract: This paper develops a simple general equilibrium model with sequential search in which a non-degenerate wage offer distribution is endogenously determined. We use this model to analyze the comparative statics effects of increases in unemployment compensation on the unemployment rate and aggregate welfare taking into account the induced change in the wage offer distribution. Our results differ significantly from the predictions of the standard "partial-partial" model. For example, one can expect a selective increase in unemployment compensation, made available to those who impute a relatively low value to leisure, to decrease the equilibriumum rate of unemployment.

Keywords: General equilibrium; unemployment; Subsidies; Wage; Mobility

JEL-codes: E24; H20; J60

33 pages, July 1983

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