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JOB SEARCH THEORY
The purpose of this paper is to examine the Fields (1989) proposition1 in a multi
sector general
equilibrium model with perfect and imperfect capital mobility2. The effects of different fiscal policies on the equilibrium
rate of urban
unemployment are also examined here3. The main findings are more efficient on-the-job search from the
rural sector raises equilibrium urban unemployment rate whereas increased job search efficiency from the urban
informal sector lowers this rate. Again urban subsidy
policy lowers the equilibrium urban unemployment rate and rural subsidy policy raises this rate. Urban formal sector enlargement leads to a change in ex-ante and ex-post labour force in the rural sector even if urban informal sector wage rate is constant. All the results are obtained both in the case of perfect and imperfect capital mobility.
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