Chapter Learning Objectives

  • Understand the basic tenets of the sequential search approach.
  • Understand the concept of a reservation wage and the factors that determine its value.
  • Understand the principles underlying the Diamond paradox and be able to explain why it leads to a degenerate wage distribution.
  • Appreciate why a strictly positive unemployment rate can be Pareto efficient.
  • Recognize the notion that wages may vary across workers because of an inherent feature of equilibria that are characterized by search frictions.
  • Recognize the practical methods that workers use to find work and the problems that inhere in them.