Advances in the Theory and Measurement of Unemployment by Yoram Weiss, Gideon Fishelson

By Yoram Weiss, Gideon Fishelson

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32, pp. 363-6. Clark, K. B. and L. H. Summers (1982) 'Unemployment Insurance and Labor Force Transitions' , National Bureau of Economic Research, Working Paper No. 920, June. Diamond, P. A. (1981) 'Mobility Costs, Frictional Unemployment, and Efficiency', Journal of Political Economy, Vol. 89, pp. 798-812. Diamond, P. A. (1982a) 'Wage Determination and Efficiency in Search Equilibrium', Review of Economic Studies, Vol. 49, pp. 217-27. Diamond, P. A. (1982b) 'Aggregate Demand Management in Search Equilibrium', Journal of Political Economy, Vol.

Since a worker with one more success may have higher value from search, it is not clear whether he would like to obey the contract, or some enforceability is needed. It can be seen that under the most reasonable conditions, the worker would not like to break the contract. However, to eliminate any possible complication, we make the following assumption Assumption 1 The contract is enforceable. Furthermore, let us assume that each new entrant enters the system with k=O and j=O. Using these assumptions, it is not possible to find a worker with j ~1 who is staying in the market.

This kind of equilibrium looks plausible under incomplete information too, because the value of the match cannot be higher anywhere else, and solution for the bargaining problem is individually rational. This means that the 'cake' exists, and under the proposed mechanism for allocation, both sides agree to cooperate. Therefore, we proceed as follows. First, we show that strategies (*) that are defined by g(t) (g* f*) = , f(t,j) = a for every tEN = (y,s) for every (t,j) E NxN where x and z are given by the Myerson solution, and q is given by 1 q(jlt,f* ,g*) = 0 if j =0 otherwise t = 0, 1,2, ...

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