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Decentralized trade as a market imperfection: the case of the labor market

Author: Burda, Michael C. INSEAD Area: Economics and Political Science Series: Working Paper ; 92/69/EPS Publisher: Fontainebleau : INSEAD, 1992.Language: EnglishDescription: 25 p.Type of document: INSEAD Working PaperAbstract: Some of the most important merits of the flow or matching approach to modelling labor markets are examined. Besides clarifying the distinction between voluntary and unvoluntary unemployment, this approach explains the importance of labor market institutions in determining the equilibrium rate. Two examples of multiple equilibria which are not related to returns to scale in the matching function are proposed. the optimality of decentralized wage setting is reviewed. Finally the model is used in deriving the optimal rate of layoff in a transformation from a planned to a market economy
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Some of the most important merits of the flow or matching approach to modelling labor markets are examined. Besides clarifying the distinction between voluntary and unvoluntary unemployment, this approach explains the importance of labor market institutions in determining the equilibrium rate. Two examples of multiple equilibria which are not related to returns to scale in the matching function are proposed. the optimality of decentralized wage setting is reviewed. Finally the model is used in deriving the optimal rate of layoff in a transformation from a planned to a market economy

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