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The Structure of Simple General Equilibrium Models with Frictional Unemployment

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  • Davidson, Carl
  • Martin, Lawrence
  • Matusz, Steven

Abstract

The authors develop a two-sector general equilibrium model in which equilibrium unemployment arises endogenously because of trading frictions in the labor market of one sector. Externalities inherent in the search process lead to inefficient equi libria, and this has important implications for the basic structure of the economy. In particular, the relationship between factor rewards and commodity prices is fundamentally different from the analogous relationship in a frictionless economy. One implication is that the economy's relative supply curve may be downward sloping, especially when the search sector is small. The authors also present several applications of the analysis. Copyright 1988 by University of Chicago Press.

Suggested Citation

  • Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1988. "The Structure of Simple General Equilibrium Models with Frictional Unemployment," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1267-1293, December.
  • Handle: RePEc:ucp:jpolec:v:96:y:1988:i:6:p:1267-93
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