Labor Market FlowsSuppose that the law of motion for unemployment is given by441 - u, = s(1 – u,) - fu,,where u, denotes the unemployment rate at time t, s is the job separation rate and fis the jobfinding rate.(a)Solve for the steady-state unemployment rate. Explain what happens to the steady-state unemployment rate and the duration of unemployment if the job separation rate s increases.Suppose that the matching function is such that the job finding rate is given by f(e,) = A0!2,where 0, = v,lu, is the labor market tightness and v, is the vacancy rate at time t. Coefficient Acaptures the efficiency of the matching process.(b) . -'Jsing the steady-state unemployment rate and the functional form for f(0), derive theBeveridge curve (i.e., express v, in terms of u,) and explain how v, and u, are related.(c)Suppose that there is free entry, i.e., firms post vacancies until the expected value of (c)Suppose that there is free entry, i.e., firms post vacancies until the expected value ofposting a vacancy is equal to its cost: q(0,)J = c. Here, J is the value of a filled job and c is the costof posting a vacancy. Solve for the equilibrium labor market tightness 0 and the steady-stateunemployment and vacancy rates. Note: Given the functional form for f(0) above, you should beable to find the functional form for q(0).Now suppose that J is explicitly determined by firm profits (rather than taken as given as before).Assume that the revenue generated by a worker-firm match is one and wage paid to the worker isinversely proportional to the unemployment rate and is given by w(u) = 1/(1 + u). Thus, we canexpress firm value as J(u) = 1- w(u) = 1 - 1/(1 +u).(d)*Use the free-entry condition and the Beveridge curve to find the equilibriumunemployment rate in terms of model parameters for this new case where J(u) depends on u.(e). .How does the equilibrium unemployment rate depend on the matching efficiencyparameter A? How does wage depend on the matching efficiency parameter A? Provide intuition foryour answers.

Law of motion of unemployment is given by the equation : u(t+1) - u(t) = s(1-ut) - fu(t) s : is the…

Labor Market Flows. Suppose that the law of motion for unemployment is given by 4,+1 - u, = s(1 – u,) – fu,. where u, denotes the unemployment rate at time t, s is the job separation rate and fis the job finding rate. (a) Solve for the steady-state unemployment rate. Explain what happens to the steady- state unemployment rate and the duration of unemployment if the job separation rate s increases. Suppose that the matching function is such that the job finding rate is given by f(0,) = A02, where 0, = v,lu, is the labor market tightness and v, is the vacancy rate at time t. Coefficient A %3D %3D cantures the efficienCy of the matching process

Labor Market Flows. Suppose that the law of motion for unemployment is given by 4,+1 - u, = s(1 – u,) – fu,. where u, denotes the unemployment rate at time t, s is the job separation rate and fis the job finding rate. (a) Solve for the steady-state unemployment rate. Explain what happens to the steady- state unemployment rate and the duration of unemployment if the job separation rate s increases. Suppose that the matching function is such that the job finding rate is given by f(0,) = A02, where 0, = v,lu, is the labor market tightness and v, is the vacancy rate at time t. Coefficient A %3D %3D cantures the efficienCy of the matching process

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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