Search and unemployment

Question 1

Unemployment rate

Answer 1

U/Q

Question 2

Participation rate

Answer 2

Q/N

Question 3

Employment/population ratio

Answer 3

(Q-U) / N

Question 4

Vacancy rate

Answer 4

A / (A + Q - U)

Question 5

Beveridge curve

Answer 5

Unemployment rate and vacancy rate are negatively correlated

Question 6

Welfare of unemployed worker increases with:

Answer 6

Unemployment benefit increasing

Frequency at which workers receive job offers

Question 7

Welfare of employed worker decreases with:

Answer 7

the separation rate

Question 8

Reservation wage

Answer 8

Wage at which unemployed worker is just indifferent between accepting and declining a job offer.

Question 9

Determining unemployment rate in the search model in words (one period model)

Answer 9

Separation rate * employment rate = Unemployment rate * frequency at which wage offer arrives * fraction of workers receiving a job offer

Question 10

Determining unemployment rate in the search model equation (one period model)

Answer 10

s(1-U) = UpH(W*)

Question 11

Increase in unemployment benefits (B) (one period model)

Answer 11

Raises w* and Unemployment

Question 12

Increase in job offer rate (p)

Answer 12

Raises reservation wage, lowers unemployment

Question 13

Matching equation

Answer 13

M = e*m(Q,A)

Question 14

The payoff of staying at home equals the payoff from a match. this depends on…

Answer 14

Unemployment benefit
Labour market tightness
Difference between market wage and the Unemployment benefit

Question 15

In equilibrium, what must k equal

Answer 15

expected payoff for the firm from posting the vacancy

Question 16

HH surplus

Answer 16

w - b

Question 17

Firms surplus

Answer 17

z - w

Question 18

Total surplus

Answer 18

z - b

Question 19

Workers share of surplus equation

Answer 19

w = az + (1-a)b

Question 20

Increase in the unemployment benefit (two period model)

Answer 20

Increases the wage.
Posting vacancies therefore becomes less attractive.
Labour market tightness falls
There are two offsetting factors. Higher wage means more attractive to work. Searching for work is less attractive.
Q may rise or fall depending on which is greater.
Unemployment rises and vacancies posted falls.

Question 21

Increase in productivity

Answer 21

Increases wage as worker gets same share of larger pie.
Posting vacancies is more attractive due to higher profits, therefore labour market tightness rises.

Unemployment falls
Output rises
Vacancies posted rises

Question 22

Decrease in matching efficiency

Answer 22

Chances of finding a worker are lower.
Therefore labour market tightness falls
Searching is less attractive so chance of finding a job are lower.
Wages remain the same.

Unemployment rises
Output falls
Vacancy rate stays the same