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Household search and the aggregate labor market

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  • Mankart, Jochen
  • Oikonomou, Rigas

Abstract

We develop a theoretical model with labor market frictions, incomplete financial markets and with households which have two members. Households face unemployment risks but their members adjust their labor supplies to insure against unemployment. We use the model to explain the cyclical properties of aggregate employment and participation. As in the US data, the model predicts that the participation rate (the fraction of individuals that want jobs) is not strongly correlated with aggregate economic activity. This property is in sharp contrast to the strongly procyclical participation predicted by both neoclassical models and models with search frictions, when we assume bachelor households or households with infinitely many members (complete markets). In the two member household model and in the data, primary earners are always in the labor force, secondary earners have a mildly countercyclical participation rate and a mildly procyclical employment rate. Their behavior insures the household against unemployment risks.

Suggested Citation

  • Mankart, Jochen & Oikonomou, Rigas, 2015. "Household search and the aggregate labor market," Discussion Papers 26/2015, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdps:262015
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    Cited by:

    1. Elsby, Michael W.L. & Hobijn, Bart & Şahin, Ayşegül, 2015. "On the importance of the participation margin for labor market fluctuations," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 64-82.
    2. Doepke, M. & Tertilt, M., 2016. "Families in Macroeconomics," Handbook of Macroeconomics, Elsevier.
    3. Razzu, Giovanni & Singleton, Carl, 2016. "Gender and the business cycle: An analysis of labour markets in the US and UK," Journal of Macroeconomics, Elsevier, vol. 47(PB), pages 131-146.
    4. Wang, Cheng & Williamson, Stephen D., 2002. "Moral hazard, optimal unemployment insurance, and experience rating," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1337-1371, October.
    5. Valladares-Esteban, Arnau & Choi, Sekyu, 2016. "On households and unemployment insurance," Discussion Paper Series In Economics And Econometrics 1508, Economics Division, School of Social Sciences, University of Southampton.
    6. Mankart, Jochen & Oikonomou, Rigas, 2016. "The rise of the added worker effect," Economics Letters, Elsevier, vol. 143(C), pages 48-51.
    7. Javier Fernandez-Blanco, 2017. "Unemployment Risks and Intra-Household Insurance," 2017 Meeting Papers 478, Society for Economic Dynamics.
    8. Kevin X. D. Huang & Gregory W. Huffman, 2010. "A Defense of the Current US Tax Treatment of Employer-Provided Medical Insurance," Vanderbilt University Department of Economics Working Papers 1001, Vanderbilt University Department of Economics.
    9. Etienne Lalé, 2015. "Turbulence and the Employment Experience of Older Workers," Bristol Economics Discussion Papers 15/652, Department of Economics, University of Bristol, UK, revised 13 Jul 2016.
    10. Kathrin Ellieroth, 2017. "Cyclicality of Hours Worked by Married Women and Spousal Insurance," Caepr Working Papers 2017-009 Classification-D, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.

    More about this item

    Keywords

    Heterogeneous Agents; Family Self Insurance; Labor Market Search; Aggregate Fluctuations;

    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
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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