In the one-sided search model, a decrease in the fraction of the unemployed receiving job offers
A) increases the welfare of the employed.
B) reduces the welfare of the employed.
C) reduces the welfare of the unemployed.
D) increases the welfare of the unemployed.
E) is irrelevant.

Question

Quizplus · Accepted Answer

In the one-sided search model, the fraction of the unemployed receiving job offers determines the bargaining power of the unemployed. A decrease in this fraction reduces the bargaining power of the unemployed, which leads to lower wages for them. This reduces the welfare of the unemployed. The welfare of the employed remains unaffected as they continue to receive the same wage. Therefore, the correct choice is (C) reduces the welfare of the unemployed.

In the One-Sided Search Model, a Decrease in the Fraction