Consider the job search behavior of an unemployed worker. There is a wage offer distribution, which is known to the unemployed worker. The unemployed worker draws one wage offer from that distribution each period and decides whether to accept or reject the offer. If she accepts, she is employed forever at that wage. If she rejects, she receives a fixed amount of unemployment insurance and draws another offer next period. Characterize and explain how the asking (or reservation) wage is determined. [Hint: Use a diagram and plot marginal cost of search versus the marginal revenue from search.]

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