Suppose your government reforms its unemployment insurance system. the duration of UI benefits received by unemployed persons shortens from nine to six months. In addition, the government reduces the taxes on labor income but not those on UI benefits. Examine the effects of this decision on the reservation wage and long-term unemployment with the aid of the one-sided search model of unemployment.

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In the context of the onesided search model of unemployment where individuals decide whether to accept a job offer based on their reservation wage sho... View the full answer