A Neoclassical Model of Unemployment and the Business Cycle

  title={A Neoclassical Model of Unemployment and the Business Cycle},
  author={James D. Hamilton},
  journal={Journal of Political Economy},
  pages={593 - 617}
This paper investigates a general equilibrium model of unemployment and the business cycle in which specialization of labor plays a key role. A rational expectations equilibrium with fully flexible wages and prices can exhibit unemployment in which the marginal product of employed workers exceeds the reservation wage of those who are without jobs. Workers are unemployed either because they are in the process of relocating for a better job or because they are waiting for conditions in the… 
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