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In: Economics

In a competitive equilibrium, the equilibrium wage clears the market and everybody that is looking for a job can find one.

In a competitive equilibrium, the equilibrium wage clears the market and everybody that is looking for a job can find one. But in reality, we observe quite widespread involuntary unemployment.

a) Describe how search frictions can generate unemployment in equilibrium.

b) Define structural unemployment and discuss how structural unemployment differs from frictional unemployment.

c) How can the generosity of the unemployment insurance benefit effect the length of the unemployment spell and the accepted wage offer? Use your own words and carefully describe the mechanisms.

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Rahul Sunny answered 2 years ago
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