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Do general equilibrium effects matter for labor market dynamics?

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  • Kudoh, Noritaka
  • Miyamoto, Hiroaki

Abstract

Business cycle models with search-matching frictions are studied to evaluate the importance of general equilibrium effects generated by movements in the stochastic discount factor and the income effect on labor supply. Without variable work hours, the general equilibrium effect works only through the stochastic discount factor and is quantitatively very weak. With variable work hours, the income effect generates procyclical movements in the value of leisure and the marginal hourly wage rate. This effect is sizeable and dampens labor market fluctuations.

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  • Kudoh, Noritaka & Miyamoto, Hiroaki, 2023. "Do general equilibrium effects matter for labor market dynamics?," Economic Modelling, Elsevier, vol. 119(C).
    • Handle: RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003455
    DOI: 10.1016/j.econmod.2022.106108
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    More about this item

    Keywords

    Labor market search; Stochastic discount factor; Unemployment volatility;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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