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On Modelling the Natural Rate of Unemployment with Indivisible Labour

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  • Jeremy Greenwood
  • Gregory W. Huffman

Abstract

This analysis investigates modeling the natural rate of unemployment in settings wh ere labor's utilization has some lumpy aspect to it. Specifically, th e introduction of various nonconvexities into tastes and technology l ead to unemployment in general equilibrium. Equilibria can emerge whe re (1) those currently unemployed have higher probabilities of being unemployed in the future than those currently employed; (2) some agen ts are jobless while others work overtime; and (3) seniority rules se emingly arise whereby old workers cannot be laid off so long as eithe r new workers are being hired or some workers are doing overtime. The relative welfare levels of employed and unemployed agents are analyz ed.

Suggested Citation

  • Jeremy Greenwood & Gregory W. Huffman, 1988. "On Modelling the Natural Rate of Unemployment with Indivisible Labour," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 587-609, August.
    • Handle: RePEc:cje:issued:v:21:y:1988:i:3:p:587-609
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    Cited by:

    1. Greenwood, Jeremy & MacDonald, Glenn M & Zhang, Guang-Jia, 1996. "The Cyclical Behavior of Job Creation and Job Destruction: A Sectoral Model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(1), pages 95-112, January.
    2. Jess Benhabib & Randall Wright & Richard Rogerson, 1990. "Homework in Macoreconomics I: Basic Theory (Part I of II)," NBER Working Papers 3344, National Bureau of Economic Research, Inc.
    3. Parantap Basu & Laura Marsiliani & Thomas I. Renström, 2004. "Optimal Dynamic Taxation with Indivisible Labour," Manchester School, University of Manchester, vol. 72(s1), pages 34-54, September.
    4. Campbell, Jeffrey R. & Kuttner, Kenneth N., 1996. "Macroeconomic effects of employment reallocation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 87-116, June.
    5. Shell, Karl & Wright, Randall, 1993. "Indivisibilities, Lotteries, and Sunspot Equilibria," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(1), pages 1-17, January.
    6. Renström, Thomas I & Basu, Parantap, 2002. "When to Tax Labour?," CEPR Discussion Papers 3456, C.E.P.R. Discussion Papers.
    7. Renström, Thomas I & Marsiliani, Laura & Basu, Parantap, 2004. "Optimal Dynamic Taxation with Indivisible Labour," CEPR Discussion Papers 4190, C.E.P.R. Discussion Papers.
    8. Zuzana Janko, 2011. "A dynamic small open economy model with involuntary unemployment," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(4), pages 1350-1368, November.
    9. Parantap Basu & Thomas Renstrom, "undated". "When to Tax Labor?," Wallis Working Papers WP28, University of Rochester - Wallis Institute of Political Economy.

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