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Aggregate Labor Market Outcomes: The Role of Choice and Chance

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  • Rogerson, Richard
  • Sahin, Aysegul
  • Mukoyama, Toshihiko

Abstract

Commonly used frictional models of the labor market imply that changes in frictions have large effects on steady state employment and unemployment. We use a model that features both frictions and an operative labor supply margin to examine the robustness of this feature to the inclusion of a empirically reasonable labor supply channel. The response of unemployment to changes in frictions is similar in both models. But the labor supply response present in our model greatly attenuates the effects of frictions on steady state employment relative to the simplest matching model, and two common extensions. We also find that the presence of empirically plausible frictions has virtually no impact on the response of aggregate employment to taxes.

Suggested Citation

  • Rogerson, Richard & Sahin, Aysegul & Mukoyama, Toshihiko, 2009. "Aggregate Labor Market Outcomes: The Role of Choice and Chance," CEPR Discussion Papers 7435, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7435
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    More about this item

    Keywords

    Labour market frictions; Labour supply; Taxes;
    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
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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