Advances in the Theory and Measurement of Unemployment by Yoram Weiss, Gideon Fishelson

By Yoram Weiss, Gideon Fishelson

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The discounted market values, 6v o(k) and 6Vf represent the alternative values that each party can obtain upon a separation. Therefore, these values represent the disagreement outcome in a Nash bargaining solution. e. individually rational outcomes that are not the disagreement outcome only) if 1 - 6vo (k) - OVf > O. In this case, the set of individually rational and Pareto optimal outcomes can be written as the set S, S = {w II-ovf ~w ~ 6v o (k)}. The Nash solution selects one outcome out of this set.

Note that the special features of this model make the hazard rate independent of the worker's decision. The decline in the hazard rate is, therefore, a purely statistical property. This stands in contrast with most search models, in which the hazard rate is determined by the reservation wage chosen by the worker. Jensen and Vishwanath (1985) describe a partial equilibrium model with declining hazard rate based upon this approach. Any analysis of this kind, as well as in any generalization of our model to include the above relationship, is complicated by the fact that the worker may take into account the effects of being unemployed.

If the firm does not want to check the worker or the worker does not want to be checked, they break off negotiation. In this sense, the check-up is similar to a learning process about the match quality (Jovanovic, 1979) and cannot be avoided. Each period M new workers and M new firms enter the market. Thus, each period the population of unemployed workers consists of the M workers who just entered and all the 'old' workers who did not find a good match. In the same way, the population of firms is composed of the M new firms and all the 'old' firms that did not find a good match.

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