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Aggregate labor market outcomes: The roles of choice and chance

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  • Per Krusell
  • Toshihiko Mukoyama
  • Richard Rogerson
  • Ayşegül Şahin

Abstract

Commonly used frictional models of the labor market imply that changes in frictions have large effects on steady state employment and unemployment. We use a model that features both frictions and an operative labor supply margin to examine the robustness of this feature to the inclusion of a empirically reasonable labor supply channel. The response of unemployment to changes in frictions is similar in both models. But the labor supply response present in our model greatly attenuates the effects of frictions on steady state employment relative to the simplest matching model, and two common extensions. We also find that the presence of empirically plausible frictions has virtually no impact on the response of aggregate employment to taxes.

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Bibliographic Info

Article provided by Econometric Society in its journal Quantitative Economics.

Volume (Year): 1 (2010)
Issue (Month): 1 (07)
Pages: 97-127

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Handle: RePEc:ecm:quante:v:1:y:2010:i:1:p:97-127

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References

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  1. Krusell, Per & Mukoyama, Toshihiko & Rogerson, Richard & Sahin, Aysegül, 2011. "A three state model of worker flows in general equilibrium," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1107-1133, May.
  2. Krusell, Per & Mukoyama, Toshihiko & Rogerson, Richard & Sahin, Aysegül, 2008. "Aggregate implications of indivisible labor, incomplete markets, and labor market frictions," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 961-979, July.
  3. Yongsung Chang & Sun-Bin Kim, 2006. "From Individual To Aggregate Labor Supply: A Quantitative Analysis Based On A Heterogeneous Agent Macroeconomy ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 1-27, 02.
  4. Josep Pijoan-Mas, 2004. "Precautionary Savings or Working Longer Hours?," 2004 Meeting Papers 350, Society for Economic Dynamics.
  5. David Domeij & Martin Floden, 2006. "The Labor-Supply Elasticity and Borrowing Constraints: Why Estimates are Biased," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 242-262, April.
  6. Ljungqvist, Lars & Sargent, Thomas J, 2007. "Do Taxes Explain European Employment? Indivisible Labour, Human Capital, Lotteries and Savings," CEPR Discussion Papers 6196, C.E.P.R. Discussion Papers.
  7. Martin Floden & Jesper Lindé, 2001. "Idiosyncratic Risk in the United States and Sweden: Is There a Role for Government Insurance?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 406-437, July.
  8. Fernando Alvarez & Marcelo Veracierto, 1999. "Labor market policies in an equilibrium search model," Working Paper Series WP-99-10, Federal Reserve Bank of Chicago.
  9. Yongsung Chang & Sun-Bin Kim, 2007. "Heterogeneity and Aggregation: Implications for Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 97(5), pages 1939-1956, December.
  10. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
  11. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-90, September.
  12. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
  13. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
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  15. Andolfatto, D. & Gomme, P. & Storer, P., 1996. "U.S. Labour Market Policy and the Canada-U.S. Unemployment Rate Gap," Working Papers 9604, University of Waterloo, Department of Economics.
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Citations

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Cited by:
  1. Richard Rogerson, 2011. "Individual and Aggregate Labor Supply with Coordinated Working Times," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 7-37, 08.
  2. Richard Rogerson & Robert Shimer, 2010. "Search in Macroeconomic Models of the Labor Market," NBER Working Papers 15901, National Bureau of Economic Research, Inc.
  3. Tom Kornstad & Ragnar Nymoen & Terje Skjerpen, 2012. "Macroeconomic shocks and the probability of being employed," Discussion Papers 675, Research Department of Statistics Norway.
  4. Per Krusell & Toshihiko Mukoyama & Richard Rogerson & Aysegul Sahin, 2009. "A Three State Model of Worker Flows in General Equilibrium," NBER Working Papers 15251, National Bureau of Economic Research, Inc.
  5. Alessia Campolmi & Stefano Gnocchi, 2011. "Labor Market Participation, Unemployment and Monetary Policy," MNB Working Papers 2011/4, Magyar Nemzeti Bank (the central bank of Hungary).
  6. Per Krusell & Toshihiko Mukoyama & Ayseg ul Sahin, 2007. "Labor-Market Matching with Precautionary Savings and Aggregate Fluctuations," Levine's Bibliography 122247000000001783, UCLA Department of Economics.
  7. Serife Nuray Akin & Matthew Butler & Brennan C. Platt, 2013. "Accounting for age in marital search decisions," Working Papers 2013-01, University of Miami, Department of Economics.
  8. Cozzi, Marco, 2014. "Equilibrium Heterogeneous-Agent models as measurement tools: Some Monte Carlo evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 208-226.
  9. Michael W.L. Elsby & Bart Hobijn & Aysegül Sahin, 2013. "On the importance of the participation margin for market fluctuations," Working Paper Series 2013-05, Federal Reserve Bank of San Francisco.
  10. Alexandre Janiak & Paulo Santos Monteiro, 2011. "Towards a quantitative theory of automatic stabilizers: the role of demographics," Documentos de Trabajo 284, Centro de Economía Aplicada, Universidad de Chile.

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