Life-Cycle Equilibrium Unemployment

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Life-Cycle Equilibrium Unemployment

Author Info

Chéron, Arnaud () (University of Le Mans)
Hairault, Jean-Olivier () (University of Paris 1)
Langot, François () (University of Le Mans)

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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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3396.

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Length: 39 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3396

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Find related papers by 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

This paper has been announced in the following NEP Reports:

NEP-AGE-2008-03-25 (Economics of Ageing)
NEP-ALL-2008-03-25 (All new papers)
NEP-DGE-2008-03-25 (Dynamic General Equilibrium)
NEP-LAB-2008-03-25 (Labour Economics)

References listed on IDEAS
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Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Jul, pages 2-13. [Downloadable!]
Other versions:
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- Edward C. Prescott, 2004. "Why do Americans Work so Much More than Europeans?," NBER Working Papers 10316, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Other versions:
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Other versions:
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Other versions:
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Other versions:
- Lars Ljungqvist & Thomas J. Sargent, 1995. "The European unemployment dilemma," Working Paper Series, Macroeconomic Issues 95-17, Federal Reserve Bank of Chicago.
- Ljungqvist, Lars & Sargent, Thomas J., 1997. "The European Unemployment Dilemma," Working Paper Series in Economics and Finance 178, Stockholm School of Economics.
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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 188-94, March. [Downloadable!] (restricted)

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