Labor Supply and Frictions over the Business Cycle
AbstractThis paper analyzes a business cycle model with labor market frictions as well as an extensive labor supply margin. There are exogenous aggregate shocks to productivity, the job finding rate, and the separation rate. Workers also face idiosyncratic productivity (wage) shocks that they cannot insure against directly. The calibrated model reproduces the cyclical properties of employment, unemployment, and labor force participation. Moreover, it delivers aggregate flows across the three worker states - employed, unemployed, and not in the labor force - that are broadly consistent both with the long-run and the cyclical properties of the data. We assess the importance of each individual shock in accounting for various cyclical properties of the labor market. Though the approach taken here leaves open what causes the aggregate shocks, it emphasizes that the data can be successfully replicated with a rather standard-looking model as long as it features both the labor supply channel and the frictional channel.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 100.
Date of creation: 2011
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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
Web page: http://www.EconomicDynamics.org/society.htm
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- Haefke, Christian & Reiter, Michael, 2011.
"What Do Participation Fluctuations Tell Us About Labor Supply Elasticities?,"
IZA Discussion Papers
6039, Institute for the Study of Labor (IZA).
- Haefke, Christian & Reiter, Michael, 2012. "What Do Participation Fluctuations Tell Us About Labor Supply Elasticities?," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62055, Verein für Socialpolitik / German Economic Association.
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