with search frictions as harmonised as possible with the standard model, which does not distinguish the labour market for different groups of households. The parameter governing the production of labour services is in line with Bodart et al. (2006).

Matching efficiency and vacancy posting costs are obtained by targeting matching probabilities of workers and firms. Matching probabilities of workers come from the OECD and Eurostat data for unemployment duration by educational attainment for 2017 and 2018 using the method of Shimer (2012).10 The matching probability for firms is based on the estimates for the US in Den Haan et al. (2000) and Stähler and Thomas (2012) for Europe. These two probabilities determine matching efficiency and (indirectly) vacancy posting costs (the latter being lower for HtM households).

Separation rates are obtained by matching unemployment rates, which are OECD data averages from 2004-2019. Consistently with job finding probabilities, we assume that the unemployment rate for non-Ricardian households is the unemployment rate for persons with educational attainment below upper-secondary. Matching the unemployment rates results in break-up rates for HtM households exceeding those of Ricardian households. Bargaining power has been set to 0.5, for both groups of households, in line with the literature.

To harmonise the models, we match the wage and total labour services from the search model with those in the standard model. To match the wage, we use the replacement ratio in the search model (this indirectly influences wage through the workers' outside option). This results in replacement ratios that are close to the OECD estimates for Ricardian and HtM households, which are typically around 0.5 and slightly higher for the HtM households.11 To match labour services, we use the total time endowment of households.

10As described in Gomes et al. (2023) and Herman and Lozej (2023), we assume that non-Ricardian households have below upper-secondary education and Ricardians have above upper secondary education. The estimates are population-weighted across countries.

11Concretely, replacement rates for one-year horizon of unemployment duration for Ricardian households and two-year horizon of unemployment duration for non-Ricardian households, given that they are more likely to be long-term unemployed.