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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
The Harris–Torero model. (Harris and Tovar, 1970.) Suppose there are two sectors. Jobs in the primary sector pay wp; jobs in the secondary sector pay ws. Each worker decides which sector to be in. All workers who choose the secondary sector obtain a job. But there are a fixed number, Np, of primary sector jobs. These jobs are allocated at random among workers who choose the primary sector. Primary-sector workers who do not get a job are unemployed, and receive an unemployment benefit of b. Workers are risk-neutral, and there is no disutility of working. Thus the expected utility of a primary sector worker is qwp+(1 − q)b, where q is the probability of a primary sector worker getting a job. Assume that Â
(a) What is equilibrium unemployment as a function of  and the size of the labor force
(b) How does an increase in Np affect unemployment? Explain intuitively why, even though unemployment takes the form of workers waiting for primary-sector jobs, increasing the number of these jobs can increase unemployment.
(c) What are the effects of an increase in the level of unemployment benefits?
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