IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp3396.html
   My bibliography  Save this paper

Life-Cycle Equilibrium Unemployment

Author

Listed:
  • Chéron, Arnaud

    (University of Le Mans)

  • Hairault, Jean-Olivier

    (University of Paris 1 Panthéon-Sorbonne)

  • Langot, François

    (University of Le Mans)

Abstract

This paper develops a life-cycle approach to equilibrium unemployment. Workers only differ respectively to their distance from deterministic retirement. A non age-directed search equilibrium is then typically featured by increasing (decreasing) firing (hiring) rates with age and a hump-shaped age profile for employment. Because of intergenerational inefficiencies, the Hosios condition no longer achieves efficiency. We then explore the optimal age-pattern of some policy tools to restore this efficiency. The optimal profile for employment subsidies should increase with age, whereas firing taxes and hirings subsidies would have to be hump-shaped. Lastly, we examine the robustness of our results. We show that age-directed recruitment policies cannot exist in equilibrium even if it would have been ex-ante possible, and that introducing endogenous search effort of unemployed workers reinforces our main results.

Suggested Citation

  • Chéron, Arnaud & Hairault, Jean-Olivier & Langot, François, 2008. "Life-Cycle Equilibrium Unemployment," IZA Discussion Papers 3396, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3396
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp3396.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Richard Rogerson, 2006. "Understanding Differences in Hours Worked," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 365-409, July.
    2. Jean-Olivier Hairault & François Langot & Thepthida Sopraseuth, 2010. "Distance to Retirement and The Job Search of Older Workers: The Case For Delaying Retirement Age," Post-Print hal-00517107, HAL.
    3. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February.
    4. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    5. Hairault, Jean-Olivier & Langot, François & Ménard, Sébastien & Sopraseuth, Thepthida, 2012. "Optimal unemployment insurance for older workers," Journal of Public Economics, Elsevier, vol. 96(5), pages 509-519.
    6. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 28(Jul), pages 2-13.
    7. Guido Menzio & Irina Telyukova & Ludo Visschers, 2016. "Directed Search over the Life Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 38-62, January.
    8. Laurence J. Kotlikoff & Jagadeesh Gokhale, 1992. "Estimating a Firm's Age-Productivity Profile Using the Present Value of Workers' Earnings," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(4), pages 1215-1242.
    9. Arnaud Chéron & Jean-Olivier Hairault & François Langot, 2009. "The Role of Institutions in Transatlantic Employment Differences: A Life-Cycle View," Annals of Economics and Statistics, GENES, issue 95-96, pages 121-138.
    10. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
    11. Sattinger, Michael, 2006. "Overlapping labour markets," Labour Economics, Elsevier, vol. 13(2), pages 237-257, April.
    12. Blázquez, Maite & Jansen, Marcel, 2008. "Search, mismatch and unemployment," European Economic Review, Elsevier, vol. 52(3), pages 498-526, April.
    13. Albrecht, James & Navarro, Lucas & Vroman, Susan, 2010. "Efficiency in a search and matching model with endogenous participation," Economics Letters, Elsevier, vol. 106(1), pages 48-50, January.
    14. repec:hal:wpaper:hal-00668989 is not listed on IDEAS
    15. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    16. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
    17. repec:hal:pseose:halshs-00856144 is not listed on IDEAS
    18. Arnaud Chéron & Jean‐Olivier Hairault & François Langot, 2011. "Age‐Dependent Employment Protection," Economic Journal, Royal Economic Society, vol. 121(557), pages 1477-1504, December.
    19. Jean-Olivier Hairault & Francois Langot & Thepthida Sopraseuth, 2010. "Distance to Retirement and Older Workers' Employment: The Case for Delaying the Retirement Age," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 1034-1076, September.
    20. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    21. Jean-Olivier Hairault & Francois Langot & Arnaud Cheron, 2007. "Job creation and job destruction over the life cycle," 2007 Meeting Papers 431, Society for Economic Dynamics.
    22. Coen N. Teulings & Pieter A. Gautier, 2004. "The Right Man for the Job," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 553-580.
    23. Hellerstein, Judith K & Neumark, David & Troske, Kenneth R, 1999. "Wages, Productivity, and Worker Characteristics: Evidence from Plant-Level Production Functions and Wage Equations," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 409-446, July.
    24. Heckman, James J, 1974. "Life Cycle Consumption and Labor Supply: An Explanation of the Relationship Between Income and Consumption Over the Life Cycle," American Economic Review, American Economic Association, vol. 64(1), pages 188-194, March.
    25. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    26. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
    27. Leon J.H. Bettendorf & D. Peter Broer, 2003. "Lifetime Labor Supply in a Search Model of Unemployment," Tinbergen Institute Discussion Papers 03-032/2, Tinbergen Institute.
    28. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70(6), pages 538-538.
    29. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    30. Hairault, Jean-Olivier & Chéron, Arnaud & Langot, François, 2007. "Job Creation and Job Destruction over the Life Cycle: The Older Workers in the Spotlight," IZA Discussion Papers 2597, Institute of Labor Economics (IZA).
    31. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
    32. Lars Ljungqvist & Thomas J. Sargent, 2008. "Two Questions about European Unemployment," Econometrica, Econometric Society, vol. 76(1), pages 1-29, January.
    33. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-1085, December.
    34. David Neumark, 2003. "Age Discrimination Legislation in the United States," Contemporary Economic Policy, Western Economic Association International, vol. 21(3), pages 297-317, July.
    35. Shimer Robert & Smith Lones, 2001. "Matching, Search, and Heterogeneity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-18, April.
    36. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
    37. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627, Elsevier.
    38. Bartel, Ann P & Sicherman, Nachum, 1993. "Technological Change and Retirement Decisions of Older Workers," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 162-183, January.
    39. repec:adr:anecst:y:2009:i:95-96:p:07 is not listed on IDEAS
    40. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 11-44, August.
    41. Steven J. Davis, 2001. "The Quality Distribution of Jobs and the Structure of Wages in Search Equilibrium," NBER Working Papers 8434, National Bureau of Economic Research, Inc.
    42. Giuseppe Bertola & Ricardo J. Caballero, 1994. "Cross-Sectional Efficiency and Labour Hoarding in a Matching Model of Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 435-456.
    43. Seater, John J., 1977. "A unified model of consumption, labor supply, and job search," Journal of Economic Theory, Elsevier, vol. 14(2), pages 349-372, April.
    44. repec:hal:cesptp:halshs-00856144 is not listed on IDEAS
    45. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Arnaud Chéron & Jean‐Olivier Hairault & François Langot, 2011. "Age‐Dependent Employment Protection," Economic Journal, Royal Economic Society, vol. 121(557), pages 1477-1504, December.
    2. Hairault, Jean-Olivier & Chéron, Arnaud & Langot, François, 2007. "Job Creation and Job Destruction over the Life Cycle: The Older Workers in the Spotlight," IZA Discussion Papers 2597, Institute of Labor Economics (IZA).
    3. Jean-Olivier Hairault & Francois Langot & Arnaud Cheron, 2007. "Job creation and job destruction over the life cycle," 2007 Meeting Papers 431, Society for Economic Dynamics.
    4. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
    5. Chéron, Arnaud & Rouland, Bénédicte, 2011. "Endogenous job destructions and the distribution of wages," Labour Economics, Elsevier, vol. 18(6), pages 845-852.
    6. Langot, François & Moreno-Galbis, Eva, 2013. "Does the growth process discriminate against older workers?," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 286-306.
    7. Arnaud Chéron & Jean-Olivier Hairault & François Langot, 2009. "The Role of Institutions in Transatlantic Employment Differences: A Life-Cycle View," Annals of Economics and Statistics, GENES, issue 95-96, pages 121-138.
    8. Tito Boeri & Jan van Ours, 2013. "The Economics of Imperfect Labor Markets: Second Edition," Economics Books, Princeton University Press, edition 1, number 10142.
    9. Richard Rogerson & Robert Shimer & Randall Wright, 2004. "Search-Theoretic Models of the Labor Market-A Survey," NBER Working Papers 10655, National Bureau of Economic Research, Inc.
    10. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
    11. Laetitia Challe & Florent Fremigacci & François Langot & Yannick L'Horty & Loic Du Parquet & Pascale Petit, 2015. "Access to employment with age and gender : results of a controlled experiment," Working Papers hal-01292137, HAL.
    12. Leo Kaas & Philipp Kircher, 2015. "Efficient Firm Dynamics in a Frictional Labor Market," American Economic Review, American Economic Association, vol. 105(10), pages 3030-3060, October.
    13. Gorry, Aspen, 2013. "Minimum wages and youth unemployment," European Economic Review, Elsevier, vol. 64(C), pages 57-75.
    14. Jean-Olivier Hairault & François Langot & Thepthida Sopraseuth, 2014. "Why is Old Workers’ Labor Market more Volatile? Unemployment Fluctuations over the Life-Cycle," TEPP Working Paper 2014-03, TEPP.
    15. Hairault, Jean-Olivier & Langot, Francois & Sopraseuth, Thepthida, 2019. "Unemployment fluctuations over the life cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 100(C), pages 334-352.
    16. Tito Boeri & Michael C. Burda, 2009. "Preferences for Collective Versus Individualised Wage Setting," Economic Journal, Royal Economic Society, vol. 119(540), pages 1440-1463, October.
    17. Eleftheriou, Konstantinos, 2011. "Efficiency and specialization: A search theoretic approach," Economic Modelling, Elsevier, vol. 28(1-2), pages 229-238, January.
    18. Hairault, Jean-Olivier & Langot, François & Zylberberg, André, 2015. "Equilibrium unemployment and retirement," European Economic Review, Elsevier, vol. 79(C), pages 37-58.
    19. Mareva Sabatier & Bérangère Legendre, 2017. "The puzzle of older workers’ employment: distance to retirement and health effects," International Journal of Manpower, Emerald Group Publishing Limited, vol. 38(1), pages 45-61, April.
    20. Etienne Lalé, 2018. "Turbulence and the employment experience of older workers," Quantitative Economics, Econometric Society, vol. 9(2), pages 735-784, July.

    More about this item

    Keywords

    life cycle; matching; job search;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp3396. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.