TRANSACTIONS COSTS, FRICTIONAL UNEMPLOYMENT AND TECHNICAL CHANGE IN THE MARKET TECHNOLOGY

We consider a one-sector growth model in which factor-market frictions are described by a market technology linking the number of unemployed factors to the number of new jobs. We explore the consequences of tec hnical change in this technology, focusing on the impact on efficiency and find that the relationship between the two depends on the labor i ntensity of the market technology. We also compare technical change in the market and production technologies and find that the relative imp ortance of the two depends on the labor intensity of the market techno logy and the elasticity of factor supplies.