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Equilibrium Search Unemployment, Endogenous Participation and Labour Market Flows

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Author Info
Garibaldi, Pietro
Wasmer, Etienne

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Abstract

The sustainability of Welfare States requires high employment/high participation to raise the tax base and avoid distortions. To analyse labour market participation decisions in a world with market frictions, we propose and solve a three-state macro model of the labour market. We show that workers' decisions of entering into the labour market and exiting from the labour market are fundamentally different in the presence of frictions: irreversible costs paid by workers at the entry level imply that labour supply is determined by two margins, the entry and the exit margins. On the normative point of view, we show that the existence of two margins alters significantly the conventional effects of payroll taxes and unemployment benefits. On the positive point of view, our model rationalizes the existence of most labour market flows and of 'marginally attached workers'. Furthermore, a calibration improves the usual representations of labour markets.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3986.

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Date of creation: Jul 2003
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Handle: RePEc:cpr:ceprdp:3986

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Related research
Keywords: labour supply; search frictions; welfare state;

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Find related papers by JEL classification:
J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jung, Philip, 2007. "Optimal Taxation and (Female)-Labor Force Participation over the Cycle," MPRA Paper 8744, University Library of Munich, Germany, revised 13 May 2008. [Downloadable!]
  2. Mathan Satchi & Jonathan Temple, 2006. "Growth and labour markets in developing countries," Bristol Economics Discussion Papers 06/581, Department of Economics, University of Bristol, UK. [Downloadable!]
    Other versions:
  3. Tito Boeri & Pietro Garibaldi, 2006. "Shadow Sorting," Carlo Alberto Notebooks 10, Collegio Carlo Alberto. [Downloadable!]
    Other versions:
    • Boeri, Tito & Garibaldi, Pietro, 2006. "Shadow Sorting," CEPR Discussion Papers 5487, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    • Tito Boeri & Pietro Garibaldi, 2005. "Shadow Sorting," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005 National Bureau of Economic Research, Inc. [Downloadable!]
  4. Gautier, Pieter A & Moraga-González, José-Luis & Wolthoff, Ronald, 2007. "Structural Estimation of Search Intensity: Do Non-Employed Workers Search Enough?," CEPR Discussion Papers 6440, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Pietro Garibaldi & Etienne Wasmer, 2003. "Equilibrium Unemployment in a Model of Imperfect Labour Market," Working Papers 248, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  6. Garibaldi, Pietro & Wasmer, Etienne, 2003. "Equilibrium Employment in a Model of Imperfect Labor Markets," IZA Discussion Papers 950, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  7. Armin Falk & David Huffman & Uwe Sunde, 2006. "Do I Have What It Takes? Equilibrium Search with Type Uncertainty and Non-Participation," IZA Discussion Papers 2531, Institute for the Study of Labor (IZA). [Downloadable!]
  8. Étienne Wasmer, 2006. "Links between Labor Supply and Unemployment: Theory and Empirics," Cahiers de recherche 0615, CIRPEE. [Downloadable!]
    Other versions:
  9. Moon, Weh-Sol, 2009. "Endogenous Labor Force Participation and Firing Costs," MPRA Paper 15749, University Library of Munich, Germany. [Downloadable!]
  10. Piero Cipollone & Corrado Di Maria & Anita Guelfi, 2005. "Hiring incentives and labour force participation in Italy," Temi di discussione (Economic working papers) 552, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
  11. Etienne Campens, 2004. "A multiple matching model with endogenous participation : what's new about the supply-side policies?," Computing in Economics and Finance 2004 301, Society for Computational Economics. [Downloadable!]
  12. Per Engström & Bertil Holmlund, 2005. "Worker Absenteeism in Search Equilibrium," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  13. Mathan Satchi & Jonathan Temple, 2009. "Labor Markets and Productivity in Developing Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 183-204, January. [Downloadable!] (restricted)
    Other versions:
  14. Moon, Weh-Sol, 2008. "Explaining the Joint Behavior of Employment, Unemployment and Nonparticipation," MPRA Paper 10583, University Library of Munich, Germany, revised May 2008. [Downloadable!]
  15. Bryan Engelhardt & David L. Fuller, 2009. "Efficient Labor Force Participation with Search and Bargaining," Working Papers 0909, College of the Holy Cross, Department of Economics, revised Nov 2009. [Downloadable!]
  16. Axel Börsch-Supan & Alexander Ludwig, 2008. "Old Europe Ages: Reforms and Reform Backlashes," NBER Chapters, in: Demography and the Economy National Bureau of Economic Research, Inc. [Downloadable!]
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