Equilibrium EMployment in a Model of IMperfect Labour Market
AbstractThis paper presents a simple model of imperfect labor markets with endogenous labor market participation and home production. We show that a two-sector economy (home and market) implies a three-state labor market when labor market imperfections take the form of an irreversible entry cost incurred by workers. This simple framework brings several results. First, it delivers an expression for the employment rate and as side-products, a measure of the unemployment rate and the size of the labor force. Second, it rationalizes several empirical works on the definition of unemployment in labor force surveys. Third, it derives endogenously all flows between three labor market states. Fourth, a calibration of the model rationalizes differences in employment rates: in the U.S., we find a market productivity premium of +30% and market frictions of -15% compared to France. Finally, the model is a very simple reduced form of search models with which it is fully consistent: the irreversible entry cost is the opportunity cost of search and depends on aggregate conditions
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 344.
Date of creation: 2004
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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employment; non-employment; labor market participation; frictions;
Other versions of this item:
- Garibaldi, Pietro & Wasmer, Etienne, 2003. "Equilibrium Employment in a Model of Imperfect Labor Markets," IZA Discussion Papers 950, Institute for the Study of Labor (IZA).
- Pietro Garibaldi & Etienne Wasmer, 2003. "Equilibrium Unemployment in a Model of Imperfect Labour Market," Working Papers 248, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- J10 - Labor and Demographic Economics - - Demographic Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-02 (All new papers)
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