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Suppose that in the Shapiro Stieglitz model unemployed workers are hired according to how long they have been unemployed rather than at random

Suppose that in the Shapiro–Stieglitz model, unemployed workers are hired according to how long they have been unemployed rather than at random; specifically, suppose that workers who have been unemployed the longest are hired first.

(a) Consider a steady state where there is no shirking. Derive an expression for how long it takes a worker who becomes unemployed to get a job as a function of b, L, N, and

(b) Let VU be the value of being a worker who is newly unemployed. Derive an expression for VU as a function of the time it takes to get a job, workers’ discount rate (ρ), and the value of being employed (VE).

(c) Using your answers to parts (a ) and (b ), find the no-shirking condition for this version of the model.

(d) How, if at all, does the assumption that the longer-term unemployed get priority affect the equilibrium unemployment rate?

May 01 2020 View more View Less