This article examines unemployment disparities and efficiency in a densely populated economy with two job centers and workers distributed between them. We introduce commuting costs and search-matching frictions to deal with the spatial mismatch between workers and firms. In equilibrium, there...

We examine the equilibrium wage and employment outcomes in a labor market model comprised of informationally constrained workers and employers whose labor market interactions have a non-zero impact on wages. The model endogenizes employment interactions between workers and employers in terms of...

This paper develops a model of human capital investment in a frictional labor market with two-sided heterogeneity and liquidity constraints. The model generates underemployment in equilibrium: workers are employed in jobs for which they are over-qualified. Subsidizing education can decrease the...

This paper develops a model of human capital investment in a frictional labor market with two-sided heterogeneity and liquidity constraints. The model generates underemployment in equilibrium: workers are employed in jobs for which they are over-qualified. Subsidizing education can decrease the...

This study challenges the prevailing theories of modern macroeconomics based on observations of a real economy and skepticism toward existing theories. Two main hypotheses are tested. First, the price mechanism is significantly incomplete in a Walrasian economy and does not function,...

A simple model of production with heterogenous ability is developed. The median ability of employed workers is linked to the production elasticity of labor, causing an externality for individual firms. Due to this externality, an equilibrium allocation with a moderate level of unemployment is...