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Equilibrium Employment in a Model of Imperfect Labour Market

Author

Listed:
  • Pietro Garibaldi

    (Collegio Carlo Alberto)

  • Etienne Wasmer

Abstract

This paper presents a simple model of imperfect labor markets with endogenous labor market participation and home production. Labor market imperfections take the form of an irreversible entry cost incurred by workers which drives a wedge between the entry into the labor market and exit from the labor market. Labour force participation is thus described by two margins. This simple framework brings several results. First, it delivers an expression for the employment rate and as side-products, a measure of the unemployment rate and the size of the labour force. Second, it distinguishes between two types of non-employed workers: people without a job but willing to work at the equilibrium wage and people not willing to work. Third, it derives endogenously all flows between three labour market states. Fourth, a calibration of the model rationalizes differences in employment rates across selected countries by differences in the market productivity premium and the size of market frictions. Finally, the model is a very simple reduced form of search models with which it is fully consistent: the irreversible entry cost is the opportunity cost of search and depends on aggregate conditions.

Suggested Citation

  • Pietro Garibaldi & Etienne Wasmer, 2003. "Equilibrium Employment in a Model of Imperfect Labour Market," Sciences Po publications info:hdl:2441/9024, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/9024
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    References listed on IDEAS

    as
    1. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    2. Wasmer, E. & Zenou, Y., 1997. "Equilibrium Urban Unemployment," DELTA Working Papers 97-15, DELTA (Ecole normale supérieure).
    3. Stephen R. G. Jones & W. Craig Riddell, 1999. "The Measurement of Unemployment: An Empirical Approach," Econometrica, Econometric Society, vol. 67(1), pages 147-162, January.
    4. Edward C. Prescott, 2002. "Prosperity and Depression: 2002 Richard T. Ely Lecture," Working Papers 618, Federal Reserve Bank of Minneapolis.
    5. Bulow, Jeremy I & Summers, Lawrence H, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy,Discrimination, and Keynesian Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 376-414, July.
    6. Becker, Gary S, 1988. "Family Economics and Macro Behavior," American Economic Review, American Economic Association, vol. 78(1), pages 1-13, March.
    7. Pietro Garibaldi & Etienne Wasmer, 2005. "Equilibrium Search Unemployment, Endogenous Participation, And Labor Market Flows," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 851-882, June.
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    14. A. D. Roy, 1951. "Some Thoughts On The Distribution Of Earnings," Oxford Economic Papers, Oxford University Press, vol. 3(2), pages 135-146.
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    Cited by:

    1. Samir Amine & Pedro Lages Dos Santos, 2015. "Negative Income Tax and Labor Market Participation: A Short Run Analysis," CIRANO Working Papers 2015s-28, CIRANO.

    More about this item

    JEL classification:

    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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