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Labor Market Flows and Equilibrium Search Unemployment

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  • Garibaldi, Pietro

    ()
    (University of Turin)

  • Wasmer, Etienne

    ()
    (Sciences Po, Paris)

Abstract

This paper explicitly differentiates between unemployment and inactivity, by defining inactivity as a state in which individuals do not search for jobs when non-employed. Facing changes in the value of inactivity, individuals transit through three labor market states. In steady-state, we hence have a theory of equilibrium unemployment determined by both matching frictions and labor market participation margins. The paper firstly rationalizes and quantitatively accounts for the existence of large flows between employment, unemployment and inactivity. Secondly, it shows that unemployment and aggregate wages rise because some of the employed workers are unattached to the labor force, in the sense that they join the inactive pool when they lose a job. Thirdly, unemployment income has little effects on employment, since it attracts people into the labor force and rises the share of attached workers. Finally, our theory suggests that contrary to two-state models, taxation of market activity increases non-participation, unattachment and adversely affects unemployment.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 406.

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Length: 42 pages
Date of creation: Nov 2001
Date of revision:
Handle: RePEc:iza:izadps:dp406

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Keywords: Unemployment; matching; home production;

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References

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  1. Kenneth Burdett & Dale T. Mortensen, 1977. "Labor Supply Under Uncertainty," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 297, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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Citations

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Cited by:
  1. Engelhardt, Bryan & Rocheteau, Guillaume & Rupert, Peter, 2008. "Crime and the labor market: A search model with optimal contracts," Journal of Public Economics, Elsevier, Elsevier, vol. 92(10-11), pages 1876-1891, October.
  2. Wasmer, Etienne & Woll, Cornelia, 2011. "Scientific project, Sciences Po | LIEPP laboratoire interdisciplinaire d'evaluation des politiques publiques or in english, interdisciplinary research center for the evaluation of public policies," MPRA Paper 31434, University Library of Munich, Germany.
  3. Olivier L'Haridon & Franck Malherbet, 2008. "Employment Protection Reform in Search Economies," THEMA Working Papers, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise 2008-26, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  4. Étienne Wasmer, 2006. "Links between Labor Supply and Unemployment: Theory and Empirics," Cahiers de recherche, CIRPEE 0615, CIRPEE.
  5. Mário Centeno & Márcio Corrêa, 2006. "Job Matching, Unexpected Obligations And Retirement Decisions," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of G 159, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  6. Joydeep Bhattacharya & Helle Bunzel, 2003. "Dynamics of the planning solution in the discrete-time textbook model of labor market search and matching," Economics Bulletin, AccessEcon, vol. 5(19), pages 1-10.
  7. Olivier Charlot, 2005. "Éducation, emploi et participation au marché du travail dans un modèle d'appariement," Recherches économiques de Louvain, De Boeck Université, De Boeck Université, vol. 71(1), pages 35-66.
  8. Pietro Garibaldi & Etienne Wasmer, 2005. "Equilibrium Search Unemployment, Endogenous Participation and Labor Market Flows," Sciences Po publications, Sciences Po info:hdl:2441/8921, Sciences Po.
  9. Masaru Sasaki, 2010. "Unemployment and Workplace Safety in a Search and Matching Model," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 10-14, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  10. Bertil Holmlund, 2004. "Sickness Absence and Search Unemployment," CESifo Working Paper Series 1227, CESifo Group Munich.
  11. Turon, Helene & Simon Burgess, 2003. "Unemployment equilibrium and on-the-job search," Royal Economic Society Annual Conference 2003, Royal Economic Society 208, Royal Economic Society.
  12. Olivier, PIERARD, 2004. "Impact of Selective Reductions in Labor Taxation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2004035, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  13. M. Scarlato & M. Cenci, 2004. "Innovazione tecnologica e offerta di skills:una simulazione," Computational Economics, EconWPA 0401003, EconWPA.

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