IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Labor Market Flows and Equilibrium Search Unemployment

  • Garibaldi, Pietro

    ()

    (University of Turin)

  • Wasmer, Etienne

    ()

    (Sciences Po, Paris)

This paper explicitly differentiates between unemployment and inactivity, by defining inactivity as a state in which individuals do not search for jobs when non-employed. Facing changes in the value of inactivity, individuals transit through three labor market states. In steady-state, we hence have a theory of equilibrium unemployment determined by both matching frictions and labor market participation margins. The paper firstly rationalizes and quantitatively accounts for the existence of large flows between employment, unemployment and inactivity. Secondly, it shows that unemployment and aggregate wages rise because some of the employed workers are unattached to the labor force, in the sense that they join the inactive pool when they lose a job. Thirdly, unemployment income has little effects on employment, since it attracts people into the labor force and rises the share of attached workers. Finally, our theory suggests that contrary to two-state models, taxation of market activity increases non-participation, unattachment and adversely affects unemployment.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ftp.iza.org/dp406.pdf
Download Restriction: no

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 406.

as
in new window

Length: 42 pages
Date of creation: Nov 2001
Date of revision:
Handle: RePEc:iza:izadps:dp406
Contact details of provider: Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information: Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
  2. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
  3. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, vol. 42(1), pages 155-183, January.
  4. Abowd, John M & Zellner, Arnold, 1985. "Estimating Gross Labor-Force Flows," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 254-83, June.
  5. John C. Harsanyi & Reinhard Selten, 1972. "A Generalized Nash Solution for Two-Person Bargaining Games with Incomplete Information," Management Science, INFORMS, vol. 18(5-Part-2), pages 80-106, January.
  6. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  7. McKenna, Christopher J, 1987. "Labour Market Participation in Matching Equilibrium," Economica, London School of Economics and Political Science, vol. 54(215), pages 325-33, August.
  8. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-87, December.
  9. Dale T. Mortensen & Christopher A. Pissarides, 1999. "Job Reallocation, Employment Fluctuations and Unemployment," CEP Discussion Papers dp0421, Centre for Economic Performance, LSE.
  10. Kenneth Burdett & Dale T. Mortensen, 1977. "Labor Supply Under Uncertainty," Discussion Papers 297, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
  12. Flinn, Christopher J & Heckman, James J, 1983. "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 28-42, January.
  13. Burda, Michael & Wyplosz, Charles, 1994. "Gross worker and job flows in Europe," European Economic Review, Elsevier, vol. 38(6), pages 1287-1315, June.
  14. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
  15. Sattinger, Michael, 1995. "General Equilibrium Effects of Unemployment Compensation with Labor Force Participation," Journal of Labor Economics, University of Chicago Press, vol. 13(4), pages 623-52, October.
  16. Chinhui Juhn & Kevin M. Murphy & Robert H. Topel, 1991. "Why Has the Natural Rate of Unemployment Increased over Time?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 75-142.
  17. Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
  18. Burdett, Kenneth, et al, 1984. "Earnings, Unemployment, and the Allocation of Time over Time," Review of Economic Studies, Wiley Blackwell, vol. 51(4), pages 559-78, October.
  19. Katharine G. Abraham & Robert Shimer, 2001. "Changes in Unemployment Duration and Labor Force Attachment," NBER Working Papers 8513, National Bureau of Economic Research, Inc.
  20. Murphy, Kevin M & Topel, Robert H, 1997. "Unemployment and Nonemployment," American Economic Review, American Economic Association, vol. 87(2), pages 295-300, May.
  21. Eisner, Robert, 1988. "Extended Accounts for National Income and Product," Journal of Economic Literature, American Economic Association, vol. 26(4), pages 1611-84, December.
  22. Swaim, Paul & Podgursky, Michael, 1994. "Female Labor Supply Following Displacement: A Split-Population Model of Labor Force Participation and Job Search," Journal of Labor Economics, University of Chicago Press, vol. 12(4), pages 640-56, October.
  23. Harsanyi, John C, 1995. "Games with Incomplete Information," American Economic Review, American Economic Association, vol. 85(3), pages 291-303, June.
  24. Seater, John J., 1977. "A unified model of consumption, labor supply, and job search," Journal of Economic Theory, Elsevier, vol. 14(2), pages 349-372, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp406. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.