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Labor Supply and Frictions over the Business Cycle

Author

Listed:
  • Toshihiko Mukoyama

    (University of Virginia)

  • Richard Rogerson

    (Princeton University)

  • Aysegul Sahin

    (Federal Reserve Bank of New York)

  • Per Krusell

    (IIES)

Abstract

This paper analyzes a business cycle model with labor market frictions as well as an extensive labor supply margin. There are exogenous aggregate shocks to productivity, the job finding rate, and the separation rate. Workers also face idiosyncratic productivity (wage) shocks that they cannot insure against directly. The calibrated model reproduces the cyclical properties of employment, unemployment, and labor force participation. Moreover, it delivers aggregate flows across the three worker states - employed, unemployed, and not in the labor force - that are broadly consistent both with the long-run and the cyclical properties of the data. We assess the importance of each individual shock in accounting for various cyclical properties of the labor market. Though the approach taken here leaves open what causes the aggregate shocks, it emphasizes that the data can be successfully replicated with a rather standard-looking model as long as it features both the labor supply channel and the frictional channel.

Suggested Citation

  • Toshihiko Mukoyama & Richard Rogerson & Aysegul Sahin & Per Krusell, 2011. "Labor Supply and Frictions over the Business Cycle," 2011 Meeting Papers 100, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:100
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    Cited by:

    1. Haefke, Christian & Reiter, Michael, 2011. "What Do Participation Fluctuations Tell Us About Labor Supply Elasticities?," IZA Discussion Papers 6039, Institute for the Study of Labor (IZA).

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