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How to answer this question? (labour economics) Consider a market where both unemployed and employed workers can search, with exactly the same xed job offer

How to answer this question? (labour economics)

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Consider a market where both unemployed and employed workers can search, with exactly the same xed job offer probability. Also, the wage offers they get are drawn from the same wage offer distribution. Suddenly, the government decides to make a budget-neutral switch from a progressive income tax system to a proportional income tax system. For convenience we assume that rms do not change the gross wages that they offer and pay. As a result, net wage inequality increases. The political party that claims to care a lot for the poorer individuals complains about this. (a) (2 points) What happens to the optimal job search strategy of an unemployed worker, and why? (b) (3 points) What happens to the probability that a searching employed worker moves to another job, and why? Think particularly about what we called in the lesson as w'\

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