Is Labor Supply Important for Business Cycles?
AbstractWe build a general equilibrium model that features uninsurable idiosyncratic shocks, search frictions and an operative labor supply choice along the extensive margin. The model is calibrated to match the average levels of gross flows across the three labor market states: employment, unemployment, and non-participation. We use it to study the implications of two kinds of aggregate shocks for the cyclical behavior of labor market aggregates and flows: shocks to search frictions (the rates of job finding and job loss) and shocks to the return on the market activity (any factors affecting aggregate productivity). We find that both kinds of shocks are needed to explain the labor market data, and that an active labor supply channel is key. A model with friction shocks only, calibrated to match unemployment fluctuations, accounts for only a small fraction of employment fluctuations and has counterfactual cyclical predictions for participation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17779.
Date of creation: Jan 2012
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-20 (All new papers)
- NEP-BEC-2012-02-20 (Business Economics)
- NEP-DGE-2012-02-20 (Dynamic General Equilibrium)
- NEP-LAB-2012-02-20 (Labour Economics)
- NEP-MAC-2012-02-20 (Macroeconomics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Mankart, Jochen & Oikonomou, Rigas, 2012. "Household Search and the Aggregate Labor Market," Economics Working Paper Series 1225, University of St. Gallen, School of Economics and Political Science.
- Michaillat, Pascal, 2011.
"Fiscal Multipliers Over the Business Cycle,"
CEPR Discussion Papers
8610, C.E.P.R. Discussion Papers.
- Toshihiko Mukoyama, 2013. "The cyclicality of job-to-job transitions and its implications for aggregate productivity," International Finance Discussion Papers 1074, Board of Governors of the Federal Reserve System (U.S.).
- Alisdair McKay & Tamas Papp, 2011.
"Accounting for Idiosyncratic Wage Risk Over the Business Cycle,"
Boston University - Department of Economics - Working Papers Series
WP2011-028, Boston University - Department of Economics.
- Tamas Papp & Alisdair McKay, 2012. "Accounting for idiosyncratic wage risk over the business cycle," 2012 Meeting Papers 820, Society for Economic Dynamics.
- repec:fip:fedrwp:12-04 is not listed on IDEAS
- Didem Tuzemen, 2012. "Labor market dynamics with endogenous labor force participation and on-the-job search," Research Working Paper RWP 12-07, Federal Reserve Bank of Kansas City.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.