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Search and Rest Unemployment

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  • Fernando Alvarez

    (University of Chicago)

  • Robert Shimer

    (University of Chicago)

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

Paper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 0809.

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Length: 52 pages
Date of creation: 2008
Date of revision: Jan 2008
Handle: RePEc:eie:wpaper:0809

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References

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  1. David Weinstein & Christian Broda, 2004. "Globalization and the Gains from Variety," Econometric Society 2004 North American Summer Meetings, Econometric Society 508, Econometric Society.
  2. Alvarez, Fernando & Veracierto, Marcelo, 2001. "Severance payments in an economy with frictions," Journal of Monetary Economics, Elsevier, Elsevier, vol. 47(3), pages 477-498, June.
  3. Fernando Alvarez & Marcelo Veracierto, 2000. "Labor-Market Policies in an Equilibrium Search Model," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 265-316 National Bureau of Economic Research, Inc.
  4. Clifford Ball & Antonio Roma, 1998. "Detecting mean reversion within reflecting barriers: application to the European Exchange Rate Mechanism," Applied Mathematical Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 5(1), pages 1-15.
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Citations

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. João Miguel Ejarque, 2009. "A Search Model with a Quasi-Network," Discussion Papers 10-23, University of Copenhagen. Department of Economics, revised Sep 2010.
  2. Alan B. Krueger & Andreas Mueller, 2008. "Job Search and Unemployment Insurance: New Evidence from Time Use Data," Working Papers, Princeton University, Department of Economics, Center for Economic Policy Studies. 1093, Princeton University, Department of Economics, Center for Economic Policy Studies..
  3. 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].
  4. Chugh, Sanjay K., 2013. "Costly external finance and labor market dynamics," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(12), pages 2882-2912.
  5. Lkhagvasuren, Damba, 2012. "Big locational unemployment differences despite high labor mobility," Journal of Monetary Economics, Elsevier, Elsevier, vol. 59(8), pages 798-814.
  6. Maximiliano Dvorkin, 2013. "Sectoral Shocks, Reallocation and Unemployment in a Model of Competitive Labor Markets," 2013 Meeting Papers, Society for Economic Dynamics 1229, Society for Economic Dynamics.
  7. 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].
  8. Davis, Morris A. & Fisher, Jonas D. M. & Veracierto, Marcelo, 2013. "Gross Migration, Housing and Urban Population Dynamics," Working Paper Series, Federal Reserve Bank of Chicago WP-2013-19, Federal Reserve Bank of Chicago.
  9. Natalya Y. Shelkova, 2009. "The Minimum Wage Spike in the Search Economy with Wage-Posting," Working papers, University of Connecticut, Department of Economics 2009-40, University of Connecticut, Department of Economics.
  10. Marcelo Veracierto & Jonas Fisher & Morris Davis, 2014. "Gross Migration, Housing and Urban Population Dynamics," 2014 Meeting Papers, Society for Economic Dynamics 324, Society for Economic Dynamics.

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