Decentralized wage setting in search equilibrium models is inefficient because the meeting firm and worker ignore the dependence of job-matching probabilities on the number of firms and workers engaged in search. This paper investigates whether risk-neutral monopolistic unions will have an incentive to internalize this externality. I find that the externality will be internalized only if the union's policy is chosen by unemployed persons. If employed persons influence union policy, both the union wage and unemployment will be too high. A tax on the union wage combined with an employment subsidy to firms can correct this inefficiency.

This paper demonstrates that if both firms and workers search the other side of the market for job matches the equilibrium rate of unemployment is likely to be too high. Both sides ignore a positive externality of their search: when they establish a job match they remove from the market a job searcher, so they save society his search costs. I show that there is no feasible wage rate that can internalize this externality under fairly weak restrictions on the technology of search.

The author uses an equilibrium model of job matchings with a Nash wage equation to derive the response of wages and unemployment to productivity shock. By endogenizing labor's threat point, he shows that wages absorb fully permanent shocks but only partially temporary shocks. Hence, unemployment responds to perceived temporary shocks but not to permanent shocks.

This paper considers the effects of wage taxes, employment subsidies and unemployment benefits in a simple model of equilibrium search. Unemployment is determined by the equality of job matchings and job separations, job vacancies are determined by a zero-profit condition and wages by a Nash bargain between the meeting firm and worker. I show that marginal wage taxes influence the firm's and worker's equilibrium sharing rule, whereas employment subsidies and unemployment benefits influence only the surplus shared. Hence, tax-financed subsidies reduce wages and raise employment and vacancies, whereas tax-financed unemployment benefits raise wages and reduce employment and vacancies.

This paper argues that if the disincentive effects of unemployment insurance result from higher reservation wages, they may be eliminated by financing benefits with a progressive income tax. The result is obtained within an equilibrium model with stochastic job matchings. An optimal tax formula is derived for a linear income tax, and shown to imply that the average tax rate should increase faster with income the higher the level of UI benefits relative to other government expenditure. In some cases optimal financing may require the subsidization of low-wage jobs.

We study a multisector model of growth with differences in TFP growth rates across sectors and derive sufficient conditions for the coexistence of structural change, characterized by sectoral labor reallocation and balanced aggregate growth. The conditions are weak restrictions on the utility and production functions. Along the balanced growth path, labor employed in the production of consumption goods gradually moves to the sector with the lowest TFP growth rate, until in the limit it is the only sector with nontrivial employment of this kind. The employment shares of intermediate and capital goods remain constant during the reallocation process.