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Aggregate and Idiosyncratic Risk in a Frictional Labor Market

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  • Leena Rudanko

    ()

    (Department of Economics, Boston University)

Abstract

In this paper I develop a tractable extension of a Mortensen-Pissarides style matching model that allows for risk averse workers with limited ability to smooth consumption.1 I show that this leads to a form of equilibrium wage rigidity. This rigidity arises because the inability of workers to smooth their consumption across unemployment and employment spells changes how unemployed workers value wage offers, and hence also the offers that employers find profitable to make...

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2010-054.

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Length: 21 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:bos:wpaper:wp2010-054
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Web page: http://www.bu.edu/econ/
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Find related papers by JEL classification:
  • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
  • 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
  • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
  • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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