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Mobility Costs, Frictional Unemployment, and Efficiency

With imperfect job information flows, it is plausible that the distribution of job offerings becomes more attractive when there are more vacancies and more unemployed. With word-of-mouth communication, this condition is derived. Given this condition, steady-state equilibrium is not efficient, with welfare increased by the introduction of unemployment compensation even though all agents are risk neutral. In this way workers become more selective in the jobs they accept.