Quantitative Problems

1.
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A large number of studies indicate that the reservation wage declines with the length of the unemployment spell. What are some of the factors that might explain this behavior?
2.
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It is often suggested that unemployed workers have lower search costs than employed workers. Is this plausible? What does this imply for workers' optimal search strategies?
3.
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What happens to the typical unemployed worker's reservation wage following an increase in unemployment benefits? What is the effect of this change on the unemployment rate?
4.
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Discuss the implications of the explosive growth in the use of the Internet as a job-finding tool. In this light, explain the role played by niche job-search sites such as The Ladders, which "Brings you real, open $100K + jobs across every industry and sector."
5.
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What are meant by informal job search methods and why are they seemingly so effective? What are some the implications of the use of these methods for minority workers vis-á-vis majority workers?
6.
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Suppose the facts are as follows: wage offers are distributed uniformly over the interval [0, 100]; r = 1; δ = 0; and c = 30.5. What is the worker's reservation wage w*? Suppose that the government fully subsidizes the costs of search, so c = 0. What is the worker's reservation wage now? Since search is "free," why doesn't the worker seek out the highest wage possible, w* = $100? (Hint: A uniform distribution is one in which all of the offers in the interval [0,100] are equally likely. In this case, it can be shown E(w|w*) = 1/2 · (w* + 100) and F(w) = w/100. [Recall E(w|w*) is the expected wage conditional on drawing one that exceeds w*, and F(w*) is the probability of drawing a wage that is less than w*.])

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