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Search and Rest Unemployment

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  • Fernando Alvarez
  • Robert Shimer

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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13772.

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Date of creation: Feb 2008
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Handle: RePEc:nbr:nberwo:13772

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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. Krueger, Alan B. & Mueller, Andreas I., 2008. "Job Search and Unemployment Insurance: New Evidence from Time Use Data," IZA Discussion Papers 3667, Institute for the Study of Labor (IZA).
  2. Chugh, Sanjay K., 2013. "Costly external finance and labor market dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2882-2912.
  3. 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].
  4. 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].
  5. Lkhagvasuren, Damba, 2012. "Big locational unemployment differences despite high labor mobility," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 798-814.
  6. Natalya Y. Shelkova, 2009. "The Minimum Wage Spike in the Search Economy with Wage-Posting," Working papers 2009-40, University of Connecticut, Department of Economics.
  7. Davis, Morris A. & Fisher, Jonas D. M. & Veracierto, Marcelo, 2013. "Gross Migration, Housing and Urban Population Dynamics," Working Paper Series WP-2013-19, Federal Reserve Bank of Chicago.

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