Efficiency and Labor Market Dynamics in a Model of Labor Selection
AbstractWe characterize efficient allocations and business cycle fluctuations in a labor-selection model. Due to forward-looking hiring costs and labor supply decisions, efficiency entails both static and intertemporal dimensions. We develop welfare-relevant measures of marginal rates of transformation and efficiency along each margin and show how they nest their counterparts in the frictionless RBC model. In a calibrated version of the model, efficient fluctuations feature highly volatile unemployment and job-finding rates, in line with empirical evidence. We show analytically in a simplified version of the model that volatility arises from selection effects, not associated general equilibrium effects. We also develop sufficient conditions on wages that support efficient allocations in a decentralized economy. These conditions are independent of the wage-determination process, unlike the well-known Hosios condition for matching models, which assumes Nash-bargained wages. Also unlike the Hosios condition, there is no simple restriction on Nash bargaining that guarantees that Nash wages can support efficient allocations. Cyclical fluctuations in the Nash-bargaining economy display even larger amplification of productivity shocks into labor market outcomes than in the efficient economy, without extreme assumptions about bargaining shares, inflexibility of wages, or the size of surpluses that govern labor demand. The results establish normative and positive foundations for DSGE labor selection models.
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 Society for Economic Dynamics in its series 2011 Meeting Papers with number 824.
Date of creation: 2011
Date of revision:
Contact details of provider:
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
More information through EDIRC
Other versions of this item:
- Sanjay K. Chugh & Christian Merkl, 2013. "Efficiency and Labor Market Dynamics in a Model of Labor Selection," Boston College Working Papers in Economics 846, Boston College Department of Economics.
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lechthaler, Wolfgang & Merkl, Christian & Snower, Dennis J., 2008.
"Monetary Persistence and the Labor Market: A New Perspective,"
IZA Discussion Papers
3513, Institute for the Study of Labor (IZA).
- Lechthaler, Wolfgang & Merkl, Christian & Snower, Dennis J., 2010. "Monetary persistence and the labor market: A new perspective," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 968-983, May.
- Lechthaler, Wolfgang & Merkl, Christian & Snower, Dennis J., 2010. "Monetary Persistence and the Labor Market: A New Perspective," CEPR Discussion Papers 7650, C.E.P.R. Discussion Papers.
- Wolfgang Lechthaler & Christian Merkl & Dennis Snower, 2010. "Monetary Persistence and the Labor Market: A New Perspective," CESifo Working Paper Series 2935, CESifo Group Munich.
- Wolfgang Lechthaler & Christian Merkl & Dennis Snower, 2008. "Monetary Persistence and the Labor Market: A New Perspective," Kiel Working Papers 1409, Kiel Institute for the World Economy.
- Wouter J. den Haan & Garey Ramey & Joel Watson, 1997.
"Job Destruction and Propagation of Shocks,"
NBER Working Papers
6275, National Bureau of Economic Research, Inc.
- Wouter Denhaan & Garey Ramey & Joel Watson, 1997. "FORTRAN code for Job Destruction and Propagation of Shocks," QM&RBC Codes 61, Quantitative Macroeconomics & Real Business Cycles.
- Lee Ohanian & Andrea Raffo & Richard Rogerson, 2006.
"Long-Term Changes in Labor Supply and Taxes: Evidence from OECD Countries, 1956-2004,"
NBER Working Papers
12786, National Bureau of Economic Research, Inc.
- Ohanian, Lee & Raffo, Andrea & Rogerson, Richard, 2008. "Long-term changes in labor supply and taxes: Evidence from OECD countries, 1956-2004," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1353-1362, November.
- Lee Ohanian & Andrea Raffo & Richard Rogerson, 2006. "Long-term changes in labor supply and taxes: evidence from OECD countries, 1956-2004," Research Working Paper RWP 06-16, Federal Reserve Bank of Kansas City.
- Monique Ebell, 2008. "Resurrecting the Participation Margin," CEP Discussion Papers dp0873, Centre for Economic Performance, LSE.
- Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
- Barron, John M & Bishop, John & Dunkelberg, William C, 1985. "Employer Search: The Interviewing and Hiring of New Employees," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 43-52, February.
- Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
- Faia, Ester & Lechthaler, Wolfgang & Merkl, Christian, 2009.
"Labor Turnover Costs, Workers' Heterogeneity, and Optimal Monetary Policy,"
IZA Discussion Papers
4322, Institute for the Study of Labor (IZA).
- Wolfgang Lechthaler & Christian Merkl & Ester Faia, 2009. "Labor Turnover Costs, Workers’ Heterogeneity and Optimal Monetary Policy," 2009 Meeting Papers 193, Society for Economic Dynamics.
- Ester Faia & Wolfgang Lechthaler & Christian Merkl, 2009. "Labor Turnover Costs, Workers' Heterogeneity and Optimal Monetary Policy," Kiel Working Papers 1534, Kiel Institute for the World Economy.
- Manuel Toledo & Jose I. Silva, 2005.
"Labor Turnover Costs and the Cyclical Behavior of Vacancies and Unemployment,"
2005 Meeting Papers
775, Society for Economic Dynamics.
- Silva, José Ignacio & Toledo, Manuel, 2009. "Labor Turnover Costs And The Cyclical Behavior Of Vacancies And Unemployment," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S1), pages 76-96, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.