The authors develop a two-sector general equilibrium model in which equilibrium unemployment arises endogenously because of trading frictions in the labor market of one sector. Externalities inherent in the search process lead to inefficient equi libria, and this has important implications for...

In dynamic models of unemployment in which the employed consume more than the unemployed, workers are finitely lived, and jobs are lasting, employment transfers consumption from future generations to those currently alive, resulting in a social surplus. That is, these transfers allow the current...