This paper argues that unemployment insurance increases labor productivity by encouraging workers to seek higher productivity jobs, and by encouraging firms to create those jobs. We use a quantitative general equilibrium model to investigate whether this effect is comparable in magnitude to the...

In market economies identical workers appear to receive very different wages, violating the ‘law of one price’ of Walrasian markets. It is argued in this paper that in the absence of a Walrasian auctioneer to coordinate trade: (i) wage dispersion among identical workers is very often an...

A natural holdup problem arises in a market with search frictions: firms have to make a range of investments before finding their employees, and larger investments translate into higher wages. In particular, when wages are determined by ex post bargaining, the equilibrium is always inefficient:...

This paper explains why firms with identical opportunities may use different technologies and offer different wages. Our key assumption is that workers must engage in costly search in order to gather information about jobs (Stigler 1961). In equilibrium, some firms adopt high fixed cost, high...

This paper constructs a tractable general equilibrium model of search with risk-aversion. An increase in risk-aversion reduces wages, unemployment, and investment. Unemployment insurance (UI) has the reverse effect due to market generated moral hazard: insured workers seek high wage jobs with...