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Income Effects and the Cyclicality of Job Search Effort

Author

Listed:
  • M. Alper Çenesiz

    (cef.up, Faculdade de Economia, Universidade do Porto)

  • Luís Guimarães

    (cef.up, Faculdade de Economia, Universidade do Porto)

Abstract

The canonical matching model predicts procyclical job search effort while the evidence suggests otherwise. In this paper, we assess whether introducing income effects into a model with matching frictions leads to acyclical or countercyclical job search effort as in data. We find that income effects improve the cyclical behavior of job search effort because they make the value of leisure procyclical. But the procyclicality of the value of leisure also magnifies the procyclicality of the wage. Unless we make unsound assumptions to mute this effect on the wage, the model generates either acyclical or procyclical unemployment. Thus, our paper casts doubt on the role of income effects in generating cyclical patterns of job search effort consistent with the data.

Suggested Citation

  • M. Alper Çenesiz & Luís Guimarães, 2018. "Income Effects and the Cyclicality of Job Search Effort," CEF.UP Working Papers 1803, Universidade do Porto, Faculdade de Economia do Porto, revised Apr 2019.
    • Handle: RePEc:por:cetedp:1803
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    File URL: http://cefup.fep.up.pt/uploads/WorkingPapers/wp1803.pdf
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    References listed on IDEAS

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    1. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    2. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    3. Stephen DeLoach & Mark Kurt, 2013. "Discouraging Workers: Estimating the Impacts of Macroeconomic Shocks on the Search Intensity of the Unemployed," Journal of Labor Research, Springer, vol. 34(4), pages 433-454, December.
    4. Robert Shimer, 2010. "Labor Markets and Business Cycles," Economics Books, Princeton University Press, edition 1, number 9217, December.
    5. Leyva Gustavo, 2018. "Against All Odds: Job Search during the Great Recession," Working Papers 2018-13, Banco de México.
    6. Gomme, Paul & Lkhagvasuren, Damba, 2015. "Worker search effort as an amplification mechanism," Journal of Monetary Economics, Elsevier, vol. 75(C), pages 106-122.
    7. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
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    Cited by:

    1. W. Similan Rujiwattanapong, 2022. "Unemployment Insurance and Labour Productivity over the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 46, pages 196-223, October.

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    More about this item

    Keywords

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    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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