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Between Search and Walras

Eugene Kandel () and Avi Simhon
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Avi Simhon: Hebrew University of Jerusalem

Journal of Labor Economics, 2002, vol. 20, issue 1, 59-85

Abstract: We present a model in which unemployed workers simultaneously sample n potential employers. By varying n, we nest search and Walrasian-type models of the labor market. We show that low values of n yield typical search equilibria: the wages are dispersed below the marginal productivity of labor. Interestingly, as n exceeds a relatively small threshold, the Walrasian-type equilibrium emerges with the competitive wage quoted by all firms. For intermediate values of n, the equilibrium is a hybrid of the Walrasian and search equilibria. The model generates wage rigidity and yields novel predictions regarding the comovement of wages, firm turnover, and unemployment.

Date: 2002
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