(a) An increase in the employers tax on labour (payroll tax) will lead to an increase...

Transcribed Image Text:

(a) "An increase in the employers tax on labour ("payroll tax") will lead to an increase in unemployment, a lower real wage, and a longer unemployment duration." Explain and evaluate this proposition. (b) Explain why the value of a vacancy is zero in the standard labour market search model. Explain also that it can never be negative, even if there are restrictions on the numbers of vacancies that can be posted. (c) What do we mean by a Beveridge curve? What could make the Beveridge curve shift? (d) Explain how modern search theory uses the so-called matching function. How can we use this function to compute the probability that a job seeker finds a job? And, vice versa, how can we find the probability that an employer with a vacancy finds a worker? Provide examples with the aid of a Cobb-Douglas matching function. (a) "An increase in the employers tax on labour ("payroll tax") will lead to an increase in unemployment, a lower real wage, and a longer unemployment duration." Explain and evaluate this proposition. (b) Explain why the value of a vacancy is zero in the standard labour market search model. Explain also that it can never be negative, even if there are restrictions on the numbers of vacancies that can be posted. (c) What do we mean by a Beveridge curve? What could make the Beveridge curve shift? (d) Explain how modern search theory uses the so-called matching function. How can we use this function to compute the probability that a job seeker finds a job? And, vice versa, how can we find the probability that an employer with a vacancy finds a worker? Provide examples with the aid of a Cobb-Douglas matching function.