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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. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains from Variety," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 121(2), pages 541-585, May.
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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. 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..
  2. 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.
  3. 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.
  4. Rebien, Martina & Kubis, Alexander & Müller, Anne, 2014. "Success and failure in the operational recruitment process : contrasting the outcomes of search," IAB Discussion Paper, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany] 201407, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  5. 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.
  6. 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.
  7. 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.
  8. Lkhagvasuren, Damba, 2012. "Big locational unemployment differences despite high labor mobility," Journal of Monetary Economics, Elsevier, Elsevier, vol. 59(8), pages 798-814.
  9. João Miguel Ejarque, 2009. "A Search Model with a Quasi-Network," Discussion Papers, University of Copenhagen. Department of Economics 10-23, University of Copenhagen. Department of Economics, revised Sep 2010.
  10. Bauer, Anja, 2013. "Mismatch unemployment : evidence from Germany 2000-2010," IAB Discussion Paper, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany] 201310, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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