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Wage Determination and Efficiency in Search Equilibrium

Peter A. Diamond
The Review of Economic Studies
Vol. 49, No. 2 (Apr., 1982), pp. 217-227
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2297271
Page Count: 11
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Wage Determination and Efficiency in Search Equilibrium
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Abstract

Using a simple search technology and the Nash bargaining solution, the paper derives the steady state equilibrium negotiated wage as a function of the equilibrium unemployment and vacancy rates. For this wage, the lifetime expected present discounted value of earnings of a new worker is compared with the social marginal product of a new worker. These are not generally equal implying inefficient incentives for labour mobility.

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