IDEAS home Printed from https://ideas.repec.org/p/isu/genres/10255.html

Aging, Unemployment, and Welfare in a Life-Cycle Model with Costly Labor Market Search

Author

Listed:
  • Bhattacharya, Joydeep
  • Reed, Robert

Abstract

In recent years, many countries have experienced a significant shift in demographic patterns towards the elderly. This phenomenon poses numerous challenges for the design of public pension programs and labor market policies. To better understand how public policy should be designed in response to a aging workforce, it is imperative to first make an assessment of how the lifecycle affects aggregate labor market activity, and in particular, unemployment. While much work has been done on exploring how the lifecycle influences individual labor market behavior, its impact on aggregate labor market outcomes is far less studied. This paper is an attempt at addressing this lacuna within the context of a lifecycle model with costly search and matching in the labor market. The lifecycle of workers in conjunction with frictions in the labor market produces an environment in which unemployment arises as a natural possibility and both young and old workers find themselves contemporaneously competing for the same jobs. The lifecycle is shown to have significant implications for aggregate labor market activity; it may even be responsible for an inefficient allocation of workers to jobs. Additionally, public policies designed to increase labor market participation among older workers may not necessarily enhance aggregate welfare.

Suggested Citation

  • Bhattacharya, Joydeep & Reed, Robert, 2003. "Aging, Unemployment, and Welfare in a Life-Cycle Model with Costly Labor Market Search," Staff General Research Papers Archive 10255, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:10255
    as

    Download full text from publisher

    File URL: http://www2.econ.iastate.edu/papers/p1816-2003-03-27.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    2. Joydeep Bhattacharya & Casey B. Mulligan & Robert R. Reed, 2004. "Labor Market Search and Optimal Retirement Policy," Economic Inquiry, Western Economic Association International, vol. 42(4), pages 560-571, October.
    3. Robert Shimer, 2001. "The Impact of Young Workers on the Aggregate Labor Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 969-1007.
    4. Bean, Charles & Pissarides, Christopher, 1993. "Unemployment, consumption and growth," European Economic Review, Elsevier, vol. 37(4), pages 837-854, May.
    5. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-979, December.
    6. Bhattacharya, Joydeep & Reed, Robert R., 2002. "Age-specific employment policies," ISU General Staff Papers 200211050800001187, Iowa State University, Department of Economics.
    7. Hutchens, Robert, 1986. "Delayed Payment Contracts and a Firm's Propensity to Hire Older Workers," Journal of Labor Economics, University of Chicago Press, vol. 4(4), pages 439-457, October.
    8. Daniel Rodriguez & Madeline Zavodny, 2000. "Are displaced workers now finished at age forty?," Economic Review, Federal Reserve Bank of Atlanta, vol. 85(Q2), pages 33-48.
    9. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    10. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1, December.
    11. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70(6), pages 538-538.
    12. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-620, September.
    13. Carl Davidson & Lawrence Martin & Steven Matusz, 1994. "Jobs and Chocolate: Samuelsonian Surpluses in Dynamic Models of Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(1), pages 173-192.
    14. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(2), pages 217-227.
    15. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anna Batyra & David de la Croix & Olivier Pierrard & Henri Sneessens, 2016. "Structural changes in the labor market and the rise of early retirement in Europe," DEM Discussion Paper Series 16-13, Department of Economics at the University of Luxembourg.
    2. Fouad Khaskhoussi, 2009. "Job-Search Effort, Retirement Decision and Pension Reform: A Wage Bargaining Investigation," Economics Bulletin, AccessEcon, vol. 29(2), pages 1255-1263.
    3. Bhattacharya, Joydeep & Reed, Robert R., 2002. "Age-specific employment policies," ISU General Staff Papers 200211050800001187, Iowa State University, Department of Economics.
    4. Anna Batyra & David de la Croix & Olivier Pierrard & Henri R. Sneessens, 2013. "Declining bargaining power of workers and the rise of early retirement in Europe," GIAM Working Papers 13-6, Galatasaray University Economic Research Center.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bhattacharya, Joydeep & Reed, Robert R., 2002. "Age-specific employment policies," ISU General Staff Papers 200211050800001187, Iowa State University, Department of Economics.
    2. Joydeep Bhattacharya & Robert R. Reed, 2006. "Social Security and Intergenerational Redistribution," Contributions to Economic Analysis, in: Structural Models of Wage and Employment Dynamics, pages 183-213, Emerald Group Publishing Limited.
    3. Ljungqvist, Lars & Sargent, Thomas J., 2007. "Understanding European unemployment with matching and search-island models," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2139-2179, November.
    4. Heywood, John S. & Siebert, W. Stanley, 2009. "Understanding the Labour Market for Older Workers: A Survey," IZA Discussion Papers 4033, IZA Network @ LISER.
    5. Simon Jäger & Benjamin Schoefer & Josef Zweimüller, 2023. "Marginal Jobs and Job Surplus: A Test of the Efficiency of Separations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(3), pages 1265-1303.
    6. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
    7. Marco Guerrazzi, 2023. "Optimal growth with labor market frictions," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(4), pages 961-987, December.
    8. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
    9. Hung-Ju Chen & Been-Lon Chen & Ping Wang, 2010. "Taxing Capital is Not a Bad Idea Indeed: The Role of Human Capital and Labor-Market Frictions," 2010 Meeting Papers 827, Society for Economic Dynamics.
    10. William J. Carrington & Bruce Fallick, 2017. "Why Do Earnings Fall with Job Displacement?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 56(4), pages 688-722, October.
    11. Pieter A. Gautier & Coen N. Teulings, 2000. "The Right Man for the Job: Increasing Returns in Search?," Econometric Society World Congress 2000 Contributed Papers 0066, Econometric Society.
    12. Sattinger, Michael, 2006. "Overlapping labour markets," Labour Economics, Elsevier, vol. 13(2), pages 237-257, April.
    13. Brown, Byron W. & Woodbury, Stephen A., 1998. "Seniority, external labor markets, and faculty pay," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(4), pages 771-798.
    14. Messe, P.J., 2011. "Taxation of early retirement windows and delaying retirement: The French experience," Economic Modelling, Elsevier, vol. 28(5), pages 2319-2341, September.
    15. C. Sofia Machado & Miguel Portela, 2011. "Age and opportunities for promotion," NIPE Working Papers 03/2011, NIPE - Universidade do Minho.
    16. Jianjun Miao, 2006. "A search model of centralized and decentralized trade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 68-92, January.
    17. Xiaoming Cai, 2020. "Efficiency Of Wage Bargaining With On‐The‐Job Search," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1749-1775, November.
    18. Paolo Giordani, 2015. "Entrepreneurial finance and economic growth," Journal of Economics, Springer, vol. 115(2), pages 153-174, June.
    19. Jake Bradley & Axel Gottfries, 2022. "Labour market dynamics and growth," Discussion Papers 2022/02, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    20. Sattinger, Michael, 2001. "A Kaldor Matching Model of Real Wage Declines," IZA Discussion Papers 380, IZA Network @ LISER.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • 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
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:isu:genres:10255. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Curtis Balmer (email available below). General contact details of provider: https://edirc.repec.org/data/deiasus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.