MACROECONOMIC IMPLICATIONS OF SEARCH THEORY FOR THE LABOR-MARKET

While the usual job search problem is a microeconomic one, this paper applies labour market data to a standard search model to extract macro economic implications. A theoretical relationship between the minimum wage, subsistence wage and reservation wage is posited and found to be violated in the data. The paper raises several issues of public polic y. It finds that the minimum wage offered is low. It provides a measur e of the 'quality' of the labour market, and discusses how it may be i mproved, by increasing the minimum wage, reducing bargaining between t he supply and demand sides of the labour market, and curbing wage vola tility.