Will the natural rate 0f unemployment be lower in the share economy described by Martin Weitzman than in a wage economy? We examine this question for a search economy with an equilibrium unemployment rate, a version 0f Salop's (1979) quits model.
Equilibrium unemployment is the same in both economies. We also examine firms' short-run adjustment to shocks. Share-economy firms adjust output less than wage-economy firms for both demand shocks and labor-supply shocks. Depending on whether rapid output adjustment is stabilizing, a share economy may be more or less stable than a wage economy
