Thus, a continuously renegotiated bargain would only affect the wage of operational jobs, leaving unchanged the behavior of idle jobs, the distinctive feature of this model. An equilibrium theory of unemployment assumes that firms and workers maximize their payoffs under rational expectations and that wages are determined to exploit the private gains from trade. It started in Pissaridess 1987 paper and was fully achieved in Pissaridess Equilibrium Unemployment Theory (1990). This would force idle firms to offer the worker his reservation utility b, exactly as in the present model. Köp boken Equilibrium Unemployment Theory av Pissarides Christopher A. But the presence of firing restrictions, would force the firm to pay the worker even when the job is idle and the worker’s participation constraint is binding. Alternatively, if we allowed a continuously renegotiated Nash bargain between the firm and the worker, the wage would be higher than the worker reservation utility in operational jobs, where the surplus from the match is positive. Given this outcome, workers have no incentive to search on the job and their parameters, other than b, do not affect the equilibrium. The model is attractive for a number of reasons: it. As Diamond (1971) has shown, this outcome is an equilibrium in a wage setting game played among employers when workers have only the power to accept or reject offers and workers search sequentially at some positive costs. the standard theory of equilibrium unemployment (Mortensen and Pissarides 1994.
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