Search and matching in the labor market without unemployment insurance
We study the differences between complete and incomplete markets against idiosyncratic shocks in a search model of the labor market in which the distribution of idiosyncratic uncertainty is determined endogenously. We show that in addition to the usual wealth effect at high levels of wealth, costly search introduces a wealth effect at low levels of wealth such that poor agents may find it optimal not to look for a job. We find conditions under which the long run equilibrium is such that there is no production with incomplete market. This equilibrium is at odds with the one obtained under the assumption of complete markets. It is also at odds with the equilibrium one would obtain under the usual assumption in the literature that idiosyncratic uncertainty is ``policy invariant" (or invariant to the market arrangement). In the second part of the paper we use numerical methods to obtain quantitative predictions of the model under a less stringent assumption such that the probability of finding a job may be positive even if search effort equals zero.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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- Per Krusell & Toshihiko Mukoyama & Ayşegül Şahin, 2010.
"Labour-Market Matching with Precautionary Savings and Aggregate Fluctuations,"
Review of Economic Studies,
Oxford University Press, vol. 77(4), pages 1477-1507.
- Per Krusell & Toshihiko Mukoyama & Aysegul Sahin, 2009. "Labor-Market Matching with Precautionary Savings and Aggregate Fluctuations," NBER Working Papers 15282, National Bureau of Economic Research, Inc.
- Per Krusell & Toshihiko Mukoyama & Ayseg ul Sahin, 2007. "Labor-Market Matching with Precautionary Savings and Aggregate Fluctuations," Levine's Bibliography 122247000000001783, UCLA Department of Economics.
- Krusell, Per & Mukoyama, Toshihiko & Sahin, Aysegul, 2009. "Labor-Market Matching with Precautionary Savings and Aggregate Fluctuations," CEPR Discussion Papers 7429, C.E.P.R. Discussion Papers.
- Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
- Huggett, Mark, 1997. "The one-sector growth model with idiosyncratic shocks: Steady states and dynamics," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 385-403, August.
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