THE WELFARE CONSEQUENCES OF A QUANTITATIVE SEARCH AND MATCHING APPROACH TO THE LABOR MARKET
Bulletin of Economic Research, 2018, vol. 70, issue 4, 423-442
This paper explores the quantitative impact on welfare of different parametric assumptions about bargaining power in a standard search and matching model of the labor market. This study computes the welfare loss if social efficiency is not attained and finds that, for a broad range of bargaining power, the welfare loss is less than 1 percent of the social optimum. This paper also investigates which aspects of the parameterization are important for welfare consequences. Further, I investigate how the welfare consequences are altered in the presence of a fixed matching cost and increasing returns to scale in the matching function.
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