Consider a model of unemployed job search, where the unemployed

1) receive job offers drawn from a distributionF(w) with probability p,

2) receive no offer with probability 1p,

3) remain in a job forever once it is accepted. Suppose that you observe a sample of data from unemployed workers (unemployment duration; accepted wage for those who exit unemployment).

(a) One of your classmates thinks that it is not possible to estimate F(w), since the only wages observed in the data are those above the reservation wage. Evaluate this statement in a way that demonstrates your knowledge of search. In particular, a good answer will discuss functional form assumptions.

(b) Is it possible to estimate p with the above data? Explain.

(c) Suggest a simple way to estimate the reservation wage