Part B. Job Search Behavior Consider the job search behavior of an unemployed worker. There is a wage offer distribution, which is known to the unemployed worker. The unemployed worker draws one wage offer from that distribution each period and decides whether to accept or reject the offer. If she accepts, she is employed forever at that wage. If she rejects, she receives a fixed amount of unemployment insurance and draws another offer next period. 1. Characterize and explain how the asking (or reservation) wage is determined. [Hint: Use a diagram and plot marginal cost of search versus the marginal revenue from search.] 2. How would the asking wage in question B.1 change if the unemployment insurance payment is increased by the government? 3. Now suppose that, after accepting an offer and becoming employed, the worker can be fired from her job with a fixed probability each period. How would the asking wage in question B.1 change?

Part B. Job Search Behavior Consider the job search behavior of an unemployed worker. There is a wage offer distribution, which is known to the unemployed worker. The unemployed worker draws one wage offer from that distribution each period and decides whether to accept or reject the offer. If she accepts, she is employed forever at that wage. If she rejects, she receives a fixed amount of unemployment insurance and draws another offer next period. 1. Characterize and explain how the asking (or reservation) wage is determined. [Hint: Use a diagram and plot marginal cost of search versus the marginal revenue from search.] 2. How would the asking wage in question B.1 change if the unemployment insurance payment is increased by the government? 3. Now suppose that, after accepting an offer and becoming employed, the worker can be fired from her job with a fixed probability each period. How would the asking wage in question B.1 change?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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