Unemployment and Inheritance Linkage: A Dynamic General Equilibrium Analysis

This general equilibrium model seeks to find an explicit relationship between inheritance (and hence, the long run wealth distribution) and the unemployment, generated due to search-friction in the labor market. The existence of unemployment in the equilibrium is guaranteed together with a perfect and an imperfect labor market. The model displays that inheritance affects unemployment positively in micro-level. Amongst the different countries as a whole, a negative relationship between income and unemployment is established. The model ensures that a dynasty does not get stagnated in a particular income class. By simulating the model, we isolate the initial income distribution from the long run income path and question the efficacy of the celebrated trap theory.