We propose a definition of involuntary unemployment which differs from that traditionally used in implicit labor … monopoly power and show that such monopoly power is necessary for involuntary unemployment to arise in the optimal contract. We … numerically compute examples and show that such unemployment occurs for a wide range of parameter values. …

This paper examines the response of real wages and employment probabilities to nominal shocks using micro-panel data … examined. The observed response patterns are inconsistent with nominal contract based theories of unemployment. These theories …

consistent with so-called “sectoral shift” theories of unemployment. These theories predict that shocks that change sectoral … relative wages should increase unemployment in the short run and lead to labor reallocation in the long run. Consistent with … in unemployment. However, equilibrium sectoral models imply that real shocks that change relative wages across sectors …

market movements between jobs or across employment states) are made by individuals acting in isolation. In reality, the vast …