Explaining the Joint Behavior of Employment, Unemployment and Nonparticipation
AbstractThis paper argues that existing matching models with unemployment as an active search and nonparticipation as an inactive search predict counterfactual results: the unemployment rate is at most two times as volatile as the employmentpopulation ratio; only 20 percent of the actual volatility of the unemployment rate is accounted for; and the labor market variables are perfectly correlated with each other. This paper proposes a modified matching model in which workers are classified after matches take place. The modified model generates the direct transition from nonparticipation to employment with no assumption that nonparticipation is an inactive search and without adjusting the time period of the model. The model also explains the important cyclical features of the U.S. labor market.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 10583.
Date of creation: Feb 2008
Date of revision: May 2008
Search and Matching; Business Cycles; Unemployment; Labor Force Participation;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-29 (All new papers)
- NEP-DGE-2008-09-29 (Dynamic General Equilibrium)
- NEP-LAB-2008-09-29 (Labour Economics)
- NEP-MAC-2008-09-29 (Macroeconomics)
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