Suppose the government makes it more difficult to qualify for unemployment insurance, for example, by increasing...

Suppose the government makes it more difficult to qualify for unemployment insurance, for example, by increasing the duration of employment required before collecting UI benefits during an unemployment spell. Determine the effects of this change in government policy on the reservation wage and the long-run unemployment rate in the one-sided search model of unemployment.

Expert Solution

Reservation wage declines as labor supply rises and labor demand declines.

Long run unemployment rises as duartion of unemployment rises and compensation declines. This raises costs and increases umeployment.

Rahul Sunny answered 2 years ago

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