Searching, Matching, And Unemployment Compensation In Search Equilibrium

Abstract

In search equilibrium model, this paper demonstrates and characterizes the properties of steady state equilibrium of wage, unemployment compensation, entry fee, and taxes. Our research is based on the behavior of a job seeking, unemployed worker with the probability of contact rate of both sides, which may affect the entry of unfilled vacancies and the level of unemployment (U). The steady-state shows that a reduction in the severity of search friction, m₀­, raises the equilibrium values of the probability of contact rates(μ*and h* ) and lower the level of unemployment (U) and the number of vacancies(V). An increase in either in the level of output, Y, or decrease in unemployment compensation, entry fee, and tax rate, increase in the number of unfilled vacancies, V*, makes it easier for workers to find jobs (μ* rises and U falls) and more difficult for vacancies to find workers(h* falls).