TRANSACTIONS COSTS, FRICTIONAL UNEMPLOYMENT AND TECHNICAL CHANGE IN THE MARKET TECHNOLOGY

We consider a one-sector growth model in which factor-market frictions are described by a market technology linking the number of unemployed factors to the number of new jobs. We explore the consequences of technical change in this technology, focusing on the impact on efficiency and find that the relationship between the two depends on the labor intensity of the market technology. We also compare technical change in the market and production technologies and find that the relative importance of the two depends on the labor intensity of the market technology and the elasticity of factor supplies.