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Search and Rest Unemployment

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Author Info

  • Fernando Alvarez
  • Robert Shimer

Abstract

This paper extends Lucas and Prescott’s (1974) search model to develop a notion of rest unemployment. The economy consists of a continuum of labor markets, each of which produces a heterogeneous good. There is a constant returns to scale production technology in each labor market, but labor productivity is continually hit by idiosyncratic shocks, inducing the costly reallocation of workers across labor markets. Under some conditions, some workers may be rest-unemployed, waiting for local labor market conditions to improve, rather than engaged in time consuming search. The model has distinct notions of unemployment (moving to a new labor market or waiting for labor market conditions to improve) and inactivity (enjoying leisure while disconnected from the labor market). We obtain closed-form expressions for key aggregate variables and use them to evaluate the model. Quantitatively, we find that in the U.S. economy many more people may be in rest unemployment than in search unemployment.

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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 79 (2011)
Issue (Month): 1 (01)
Pages: 75-122

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Handle: RePEc:ecm:emetrp:v:79:y:2011:i:1:p:75-122

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References

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  1. Lawrence F. Katz & Bruce D. Meyer, 1988. "Unemployment Insurance, Recall Expectations, And Unemployment Outcomes," NBER Working Papers 2594, National Bureau of Economic Research, Inc.
  2. Clifford Ball & Antonio Roma, 1998. "Detecting mean reversion within reflecting barriers: application to the European Exchange Rate Mechanism," Applied Mathematical Finance, Taylor & Francis Journals, vol. 5(1), pages 1-15.
  3. Iourii Manovskii & Gueorgui Kambourov, 2004. "Occupational Specificity of Human Capital," 2004 Meeting Papers 197, Society for Economic Dynamics.
  4. Fernando Alvarez & Marcelo Veracierto, 1999. "Labor market policies in an equilibrium search model," Working Paper Series WP-99-10, Federal Reserve Bank of Chicago.
  5. Ian P. King, 1990. "A Natural Rate Model of Frictional and Long-term Unemployment," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 523-45, August.
  6. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 3-26, Summer.
  7. David Weinstein & Christian Broda, 2004. "Globalization and the Gains from Variety," Econometric Society 2004 North American Summer Meetings 508, Econometric Society.
  8. R. Jason Faberman, 2003. "Job Flows and Establishment Characteristics: Variations Across U.S. Metropolitan Areas," William Davidson Institute Working Papers Series 2003-609, William Davidson Institute at the University of Michigan.
  9. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2011. "Frictional Wage Dispersion in Search Models: A Quantitative Assessment," American Economic Review, American Economic Association, vol. 101(7), pages 2873-98, December.
  10. Loungani, Prakash & Rogerson, Richard, 1989. "Cyclical fluctuations and sectoral reallocation : Evidence from the PSID," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 259-273, March.
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  12. Jovanovic, Boyan, 1987. "Work, Rest, and Search: Unemployment, Turnover, and the Cycle," Journal of Labor Economics, University of Chicago Press, vol. 5(2), pages 131-48, April.
  13. Scott Schuh & Robert K. Triest, 2000. "Role of firms in job creation and destruction in U.S. manufacturing," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 29-44.
  14. Alvarez, Fernando & Veracierto, Marcelo, 2001. "Severance payments in an economy with frictions," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 477-498, June.
  15. Chinhui Juhn & Kevin M. Murphy & Robert H. Topel, 1991. "Why Has the Natural Rate of Unemployment Increased over Time?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 75-142.
  16. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
  17. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
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  19. Gouge, Randall & King, Ian, 1997. "A Competitive Theory of Employment Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 64(1), pages 1-22, January.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Rest unemployment
    by Economic Logician in Economic Logic on 2008-09-16 13:12:00
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Cited by:
  1. Alan B. Krueger & Andreas Mueller, 2008. "Job Search and Unemployment Insurance: New Evidence from Time Use Data," Working Papers 1070, Princeton University, Department of Economics, Industrial Relations Section..
  2. Rebien, Martina & Kubis, Alexander & Müller, Anne, 2014. "Success and failure in the operational recruitment process : contrasting the outcomes of search," IAB Discussion Paper 201407, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  3. Natalya Y. Shelkova, 2009. "The Minimum Wage Spike in the Search Economy with Wage-Posting," Working papers 2009-40, University of Connecticut, Department of Economics.
  4. Davis, Morris A. & Fisher, Jonas D. M. & Veracierto, Marcelo, 2013. "Gross Migration, Housing and Urban Population Dynamics," Working Paper Series WP-2013-19, Federal Reserve Bank of Chicago.
  5. Lkhagvasuren, Damba, 2012. "Big locational unemployment differences despite high labor mobility," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 798-814.
  6. Bauer, Anja, 2013. "Mismatch unemployment : evidence from Germany 2000-2010," IAB Discussion Paper 201310, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  7. Chugh, Sanjay K., 2013. "Costly external finance and labor market dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2882-2912.
  8. João Miguel Ejarque, 2009. "A Search Model with a Quasi-Network," Discussion Papers 10-23, University of Copenhagen. Department of Economics, revised Sep 2010.
  9. Maximiliano Dvorkin, 2013. "Sectoral Shocks, Reallocation and Unemployment in a Model of Competitive Labor Markets," 2013 Meeting Papers 1229, Society for Economic Dynamics.

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  1. Economic Logic blog

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