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Labor Market Fluctuations in Developing Countries

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  • Sevgi Coskun

Abstract

The aim of this study is to explore the labor market properties of business cycle fluctuations for a group of 17 developing economies from 1970 to 2013 and compare these results to findings from the USA. Then, we build 7 RBC models without nominal frictions driven by temporary and permanent shocks following Aguiar and Gopinath (2007) to explain whether real business cycle models can successfully account for the labor market properties of business cycle fluctuations in these economies. Lastly, we would like to understand the fluctuations of labor wedge are mostly coming from the fluctuations of the household component of labor wedge or the fluctuations of the firm component of labor wedge in these economies. First, we would like to look at the performance of the most standard basic frictionless business cycle model driven by permanent and temporary shocks in terms of labor market moments. Then, we would like to see the performance of RBC model augmented capacity utilization, investment adjustment cost and indivisible labor using the same shocks and using both non-separable and separable utility functions. Preliminary Results: We have found that business cycle volatility is significantly higher in developing countries than in the USA. We figure also out that our models fail to generate the properties of labor market in these economies but RBC model with investment adjustment cost doing the best job among others. Lastly, we found that the most of the fluctuations comes from the fluctuations of the household component of labor wedge in developing countries.

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  • Sevgi Coskun, 2016. "Labor Market Fluctuations in Developing Countries," EcoMod2016 9732, EcoMod.
    • Handle: RePEc:ekd:009007:9732
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    Keywords

    United Kingdom; General equilibrium modeling (CGE); Developing countries;
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