When you solve the questions below, you can assume that w

1. Rewrite equation (1) and obtain an equation for the reservation wage

without the general expression of the distribution, F .

2. Discuss intuitively what happens to w when there is an increase in b.

3. Using the equation that you obtained in part 1, confirm your intuition in

part 2, that is, compute w/b and check its sign.

The value for unemployed workers is R: b+[alEV('&3) +(1 a)R]. The value for employed workers with a wage w is Am) =w+[(1 _ A)A(w)+AR]. The value for workers with a wage offer w is VCw) = max{A(w),R}. The reservation wage w'\" is defined by A(w*) = R. It is characterize by * _ 3a * 'w bmL*(ww)dF(w). (1) See the note on job search for its derivation. Assume that F is the uniform distribution between 0 and 1, that is, w ifDSwSl, F('IU)= 1 iwal. When you solve the questions below, you can assume that w'\"