Incentives in Competitive Search Equilibrium and Wage Rigidity
32 Pages Posted: 26 Jun 2006
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Incentives in Competitive Search Equilibrium and Wage Rigidity
Date Written: March 2006
Abstract
This paper examines competitive search equilibrium when workers' effort choice and "type" are private information. We derive a modified Hosios Rule determining the allocation of resources, and analyze how private information influences the responsiveness of the unemployment rate to changes in macroeconomic variables. Most importantly, private information increases the responsiveness of the unemployment rate to changes in the general (type and effort independent) productivity level. If the changes also affect the information structure, the responsiveness of the unemployment rate may be large, even if the changes in expected productivity are small.
Keywords: Private information, search, unemployment, wage rigidity
JEL Classification: E30, J30, J60
Suggested Citation: Suggested Citation
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