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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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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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Find related papers by JEL classification:

• E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
• J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
• J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

References

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Citations

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Cited by:

1. 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.
   
   • 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.
   • Krusell, Per & Mukoyama, Toshihiko & Rogerson, Richard & Sahin, Aysegul, 2009. "A Three State Model of Worker Flows in General Equilibrium," CEPR Discussion Papers 7425, C.E.P.R. Discussion Papers.
2. Per Krusell & Toshihiko Mukoyama & Aysegul Sahin, 2009. "Labor-Market Matching with Precautionary Savings and Aggregate Fluctuations," NBER Working Papers 15282, National Bureau of Economic Research, Inc.
   
   • 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.
   • Krusell, Per & Mukoyama, Toshihiko & Sahin, Aysegul, 2009. "Labor-Market Matching with Precautionary Savings and Aggregate Fluctuations," CEPR Discussion Papers 7429, C.E.P.R. Discussion Papers.
3. Marco Cozzi, 2011. "Equilibrium Heterogeneous-Agent Models as Measurement Tools: some Monte Carlo Evidence," Working Papers 1277, Queen's University, Department of Economics.
   
   • Marco Cozzi, 2011. "Equilibrium Heterogeneous-Agent Models as Measurement Tools: some Monte Carlo Evidence," 2011 Meeting Papers 1380, Society for Economic Dynamics.
4. 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.
5. Richard Rogerson, 2010. "Individual and Aggregate Labor Supply With Coordinated Working Times," NBER Working Papers 16636, National Bureau of Economic Research, Inc.
   
   • 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.
6. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, Elsevier.
   
   • Richard Rogerson & Robert Shimer, 2010. "Search in Macroeconomic Models of the Labor Market," NBER Working Papers 15901, National Bureau of Economic Research, Inc.
7. Tom Kornstad & Ragnar Nymoen & Terje Skjerpen, 2012. "Macroeconomic shocks and the probability of being employed," Discussion Papers 675, Research Department of Statistics Norway.
   
   • Kornstad, Tom & Nymoen, Ragnar & Skjerpen, Terje, 2012. "Macroeconomic Shocks and the Probability of Being Employed," Memorandum 03/2012, Oslo University, Department of Economics.
8. 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).

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