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Labor market dynamics with endogenous labor force participation and on-the-job search

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  • Tüzemen, Didem

Abstract

Studies that incorporate endogenous labor force participation and search and matching frictions in a real business cycle model report that the model generates counterfactual dynamics: (1) Labor force participation is very volatile and strongly procyclical; (2) Unemployment is weakly procyclical or acyclical; (3) Unemployment and vacancies are positively correlated. To improve the model׳s performance, I enrich the model with on-the-job search as a mechanism to dampen the movements of participation and keep vacancy creation high for longer periods. The proposed model successfully generates weakly procyclical participation, strongly countercyclical unemployment, and the Beveridge Curve. The model also succeeds in matching the statistics for labor force participation and job-to-job flows.

Suggested Citation

  • Tüzemen, Didem, 2017. "Labor market dynamics with endogenous labor force participation and on-the-job search," Journal of Economic Dynamics and Control, Elsevier, vol. 75(C), pages 28-51.
    • Handle: RePEc:eee:dyncon:v:75:y:2017:i:c:p:28-51
    DOI: 10.1016/j.jedc.2016.11.004
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    More about this item

    Keywords

    Search and matching; Endogenous participation; On-the-job search; Job-to-job flows; Business cycle;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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