According to the two-sided search model, in equilibrium labour market tightness tends to be high when
A) the cost of a vacancy is high relative to the firm's share of the surplus.
B) employment insurance benefits are high relative to the productivity of a match.
C) profits are close to zero.
D) the firm's share of the surplus is high relative to the cost of a vacancy.
E) the firm's share of the surplus is increasing in market tightness.

Question

Quizplus · Accepted Answer

According to the two-sided search model, in equilibrium labour market tightness tends to be high when the firm's share of the surplus is high relative to the cost of a vacancy. This means that firms are willing to invest more in finding and matching with the right job candidates because the return on their investment is high. As a result, the labour market becomes tighter, with fewer vacancies and more competition among job seekers for available positions.

According to the Two-Sided Search Model, in Equilibrium Labour Market