Question
(20 Points) Again consider our search model of unemployment, but now imagine there are two types of people. Job offers made to Type LS (low-skilled)
(20 Points) Again consider our search model of unemployment, but now imagine there are two types of people. Job offers made to Type LS (low-skilled) workers tend to be low, while offers made to Type HS (high-skilled) workers tend to be higher. I.e.,HHS(w)> HLS(w). Assume different types are otherwise identical, and in particular have the same value of employment (for a given w). Use a graph to show which type will have a higher reservation wage. In the data, unemployed low-skilled workers take longer (on average) to get a job, relative to unemployed high-skilled workers. What additional assumptions do you need to make in order to make the model's predictions consistent with this observation?
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