Note of search unemployment and wage differentials
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This note presents a formula for the equilibrium ratio of the number of urban job seekers to the number of formal sector jobs when a non-competitive wage differential is maintained between the wage in the formal sector and earnings elsewhere in the economy. The loss of national product due to the wage differential is also examined. The loss attributable to the misallocation of labor is accentuated by the incentive which a high urban wage gives for wasteful job-seeking.