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Aggregate Labor Market Outcomes: The Role of Choice and Chance

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  • Per Krusell
  • Toshihiko Mukoyama
  • Richard Rogerson
  • Aysegul Sahin

Abstract

Commonly used frictional models of the labor market imply that changes in frictions have large effects on steady state employment and unemployment. We use a model that features both frictions and an operative labor supply margin to examine the robustness of this feature to the inclusion of a empirically reasonable labor supply channel. The response of unemployment to changes in frictions is similar in both models. But the labor supply response present in our model greatly attenuates the effects of frictions on steady state employment relative to the simplest matching model, and two common extensions. We also find that the presence of empirically plausible frictions has virtually no impact on the response of aggregate employment to taxes.

Suggested Citation

  • Per Krusell & Toshihiko Mukoyama & Richard Rogerson & Aysegul Sahin, 2009. "Aggregate Labor Market Outcomes: The Role of Choice and Chance," NBER Working Papers 15252, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15252
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    Cited by:

    1. Elsby, Michael W.L. & Hobijn, Bart & Şahin, Ayşegül, 2015. "On the importance of the participation margin for labor market fluctuations," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 64-82.
    2. Stefania Albanesi & Aysegul Sahin, 2018. "The Gender Unemployment Gap," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 47-67, October.
    3. Cozzi, Marco, 2014. "Equilibrium Heterogeneous-Agent models as measurement tools: Some Monte Carlo evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 208-226.
    4. Nikolaos Kokonas & Paulo Santos Monteiro, 2023. "Self-fulfilling labor wedge fluctuations and unemployment insurance," Discussion Papers 2313, Centre for Macroeconomics (CFM).
    5. Tomoyuki Nakajima & Shuhei Takahashi, 2020. "The Effectiveness of Consumption Taxes and Transfers as Insurance Against Idiosyncratic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(2-3), pages 505-530, March.
    6. Domenico Ferraro & Giuseppe Fiori, 2023. "Search Frictions, Labor Supply, and the Asymmetric Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(1), pages 5-42, February.
    7. Michael Elsby & Bart Hobijn & Ayşegül Şahin, 2013. "On the Importance of the Participation Margin for Market Fluctuations," Working Paper Series 2013-05, Federal Reserve Bank of San Francisco.
    8. Been-Lon Chen & Chih-Fang Lai, 2016. "Relative effects of labor taxes on employment and working hours: role of mechanisms shaping working hours," Journal of Economics, Springer, vol. 117(1), pages 49-84, January.
    9. Kornstad, Tom & Nymoen, Ragnar & Skjerpen, Terje, 2013. "Macroeconomic shocks and the probability of being employed," Economic Modelling, Elsevier, vol. 33(C), pages 572-587.
    10. Shuhei Takahashi, 2020. "Time-Varying Wage Risk, Incomplete Markets, and Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 195-213, July.
    11. Campolmi, Alessia & Gnocchi, Stefano, 2016. "Labor market participation, unemployment and monetary policy," Journal of Monetary Economics, Elsevier, vol. 79(C), pages 17-29.
    12. Per Krusell & Toshihiko Mukoyama & Richard Rogerson & Ayşegül Şahin, 2017. "Gross Worker Flows over the Business Cycle," American Economic Review, American Economic Association, vol. 107(11), pages 3447-3476, November.
    13. Richard Rogerson, 2011. "Individual and Aggregate Labor Supply with Coordinated Working Times," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(s1), pages 7-37, August.
    14. Krusell, Per & Mukoyama, Toshihiko & Rogerson, Richard & Sahin, Aysegül, 2011. "A three state model of worker flows in general equilibrium," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1107-1133, May.
    15. Minchul Yum, 2018. "On the distribution of wealth and employment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 86-105, October.
    16. Patrick J. Conway, 2022. "Unemployment insurance programs and the choice to leave the labor force," Southern Economic Journal, John Wiley & Sons, vol. 88(4), pages 1373-1400, April.
    17. Janiak, Alexandre & Santos Monteiro, Paulo, 2016. "Towards a quantitative theory of automatic stabilizers: The role of demographics," Journal of Monetary Economics, Elsevier, vol. 78(C), pages 35-49.
    18. 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.
    19. Per Krusell & Toshihiko Mukoyama & Ayşegül Şahin, 2010. "Labour-Market Matching with Precautionary Savings and Aggregate Fluctuations," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1477-1507.
    20. Kokonas, Nikolaos & Monteiro, Paulo Santos, 2021. "Aggregation in economies with search frictions," Journal of Mathematical Economics, Elsevier, vol. 96(C).
    21. Stefania Albanesi & Aysegul Sahin, 2018. "The Gender Unemployment Gap," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 47-67, October.
    22. Michael Keane & Richard Rogerson, 2015. "Reconciling Micro and Macro Labor Supply Elasticities: A Structural Perspective," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 89-117, 08.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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