1. You are to assume that the wage offer distribution facing searchers is uniform, with an upper bound of 20 and a lower bound 0 (ie all wage offers between 0 and 20 are equally likely). Assume that the discount factor,  is equal to 0.8 and that the probability of receiving an offer in any period of unemployment is  = 0.5. Finally, assume that the utility in any period spent unemployed, u0, is 0. Now suppose that in each period an employed person has a 1% chance of losing their job, meaning =0.01. 
2. 
   
3. (a) What wage offers are accepted? In other words, what is the reservation wage? 
4. 
   
5. (b) What is the unemployment rate in the long run? 
6. (c) What is the average accepted wage

Answer rating: 100% (QA)

Answer a To find the reservation wage we need to determine the minimum wage offer that an individual ... View the full answer