Grad school Macroeconomics hw: Please see attached document for the full assignment
Question Description
Grad school Macroeconomics hw: Please see attached document for the full assignment.
Consider the following efficiency wage model where EV is the value of being employed without shirking, SV is the value of being employed with shirking and UV is the value of being unemployed. ρ is the discount rate of the representative worker, b is the rate at which jobs break, q is the detection rate of shirking workers and a is the rate at which unemployed workers find a job. The number firms in the economy is N, L is the number of workers, 𝐿𝐿 is the number workers per firm, w is the real wage and e is the full (non-shirking) effort level.
The following three equations describe the relation between the values of being in different states as a worker in the above described Shapiro-Stiglitz model:
a. Derive the value function relation for the shirking worker.
b. Assume 𝑒𝑒̅=1, 𝐿𝐿=100 and 𝑁𝑁=10. Also assume 𝜌𝜌=𝑏𝑏=𝑞𝑞=0.1. Derive and solve for equilibrium wage, employment and unemployment.
c. If the cost of full effort doubles (𝑒𝑒̅=2) in this economy (think education cost and quality), how would that affect wage and employment?
Unformatted Attachment Preview
This question has not been answered.
Create a free account to get help with this and any other question!
Brown University
1271 Tutors
California Institute of Technology
2131 Tutors
Carnegie Mellon University
982 Tutors
Columbia University
1256 Tutors
Dartmouth University
2113 Tutors
Emory University
2279 Tutors
Harvard University
599 Tutors
Massachusetts Institute of Technology
2319 Tutors
New York University
1645 Tutors
Notre Dam University
1911 Tutors
Oklahoma University
2122 Tutors
Pennsylvania State University
932 Tutors
Princeton University
1211 Tutors
Stanford University
983 Tutors
University of California
1282 Tutors
Oxford University
123 Tutors
Yale University
2325 Tutors