Borjas 12-15

Consider the standard job search model as described in the task

a. Why are the asking wage and expected unemployment duration positively related?

b. Can the standard job search model explain why unemployment duration is longer, on average, for secondary workers when compared to primary

workers? Discuss.

c. In the context of the standard search model, explain how the economy-wide average asking wage and unemployment duration are affected by an expanded underground (cash) economy. What is the effect on the equilibrium unemployment rate?