is influenced by several exogenous variables and it will change when the exogenous
environment changes. In the (θ^, k) plane it has a positive concave shape.13
Furthermore, in the long-run labor market equilibrium the steady-state employ-
ment rate is given by14
e(θ) := ∣
L
p(θ)
V + p(θ} '
eg > 0.
(22)
Therefore, the employment probability depends positively on labor market tight-
ness θ and on the matching-probability p(θ) and negatively on the separation rate
v. The higher the separation rate, the lower the steady-state employment rate.
Furthermore, the steady-state unemployment rate is determined as well as
1 = e(θ) + w(θ),
where the steady-state unemployment rate u(θ) is defined as u(θ) := U∕L.
Thus, the steady-state for the labor market is described by an efficient factor al-
location function that defines all equilibrium combinations of labor market tightness
and capital intensity.
Steady-State of the Goods Market
As common in neoclassical growth models, the long-run steady-state is charac-
terized by a constant capital intensity, i.e.
k = 0 (23)
The steady-state of the goods market can be described by a balanced capital accu-
mulation function :15
ʌ
θβ = ʌ. k“ - (1 + c,s) ʌ k
c,∙<∣Λv s
=: Φι(k)
(24)
This function shows all combinations of labor market tightness and capital intensity
characterizing the steady-state in the goods market.
Furthermore, in the (θ, k) plane the balanced accumulation function has - until
the maximum is reached - a positive slope, in the maximum a slope of zero and
behind the maximum a negative slope.16
13See appendix.
14See appendix.
10For a detailed derivation of the balanced accumulation fuction see the appendix.
16See appendix.
19