This paper constructs a tractable general equilibrium model of search with risk-aversion. An increase in risk-aversion reduces wages, unemployment and investment. Unemployment insurance (UI) has the opposite e ect: insured workers seek high wage jobs with high unemployment risk. An economy with risk-neutral workers achieves maximal output without any UI, but an economy with risk-averse workers ...

This paper discusses the endeavours of policy makers to come to some degree of wage coordination among EU countries, aiming at aligning nominal wage growth with labour productivity growth at the national levels. In this context, we analyse the nominal wage and productivity developments in Germany, the European Union’s periphery countries Greece, Ireland, Portugal, and Spain along with the US fo...

This paper analyses a model in which …rms cannot pay discriminate based on year of entry to a …rm, and develops an equilibrium model of wage dynamics and unemployment. The model is developed under the assumption of worker mobility, so that workers can costlessly quit jobs at any time. Firms on the other hand are committed to contracts. Thus the model is related to Beaudry and DiNardo (1991). We...

We develop a theory of cyclical unemployment, which relates the processes of job creation and job destruction over the business cycle, to the processes of restructuring, innovation and implementation arising from a model of endogenous cyclical growth. Due to a moral hazard problem, production workers are paid efficiency wages and experience involuntary unemployment. The model captures two key c...

In 1981, Chile reformed its social security system. An inefficient and insolvent pay-asyou-go regime was replaced by system based on individual retirement accounts. Over the years Chile’s reform has been widely praised, and has been carefully studied by policy makers throughout the world. In this paper we focus on a neglected aspect of Chile’s social security reform: its impact on labor market ...

This paper develops a search model of the labor market in which uncertainty about job finding probabilities leads unemployed to become discouraged and exit the labor market. Negative updating after unsuccessful search implies that the beliefs of the unemployed about themselves, and consequently their subjective job finding probabilities, decline with unemployment duration. The assumptions about...

In this paper we investigate experimentally the effects of a wage tax financed unemployment benefit system on the development of the budget deficit, unemployment, and some other indicators of economic performance in an international economy. We find support for the hypothesis that out-of-equilibrium price uncertainty affects the behavior of economic agents. Due to uncertainty about prices risk-...

We study optimal redistributive policies in a frictional model of the labor market. Ex-ante heterogeneous agents choose how much to search in a labor market characterized by a matching technology. We first derive efficiency results and provide policies to decentralize the optimal allocation. We then solve the mechanism design problem of a government with redistributive motives and limited infor...

Unemployment Insurance (UI) wage records allow a detailed look at the functioning of the labor market.1 Researchers used this database to examine statistical and economic relationships between job and worker flows. For example, using UI wage records for the State of Maryland, S. Burgess and others found that new hires are not limited to expanding firms; separations are not limited to shrinking ...