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Search Frictions, Efficiency Wages and Equilibrium Unemployment
OAI: oai:purehost.bath.ac.uk:openaire_cris_publications/79d98498-0913-4855-ac86-3c804d8b0753
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.