We propose a definition of involuntary unemployment which differs from that traditionally used in implicit labor … monopoly power and show that such monopoly power is necessary for involuntary unemployment to arise in the optimal contract. We … numerically compute examples and show that such unemployment occurs for a wide range of parameter values. …

examined. The observed response patterns are inconsistent with nominal contract based theories of unemployment. These theories …, inflation surprises are found to be essentially uncorrelated with real wages in all sectors, while money growth surprises are …

consistent with so-called “sectoral shift” theories of unemployment. These theories predict that shocks that change sectoral … relative wages should increase unemployment in the short run and lead to labor reallocation in the long run. Consistent with … in unemployment. However, equilibrium sectoral models imply that real shocks that change relative wages across sectors …