Moon, Weh-Sol (2008): Explaining the Joint Behavior of Employment, Unemployment and Nonparticipation.
Download (566kB) | Preview
This paper argues that existing matching models with unemployment as an active search and nonparticipation as an inactive search predict counterfactual results: the unemployment rate is at most two times as volatile as the employmentpopulation ratio; only 20 percent of the actual volatility of the unemployment rate is accounted for; and the labor market variables are perfectly correlated with each other. This paper proposes a modified matching model in which workers are classified after matches take place. The modified model generates the direct transition from nonparticipation to employment with no assumption that nonparticipation is an inactive search and without adjusting the time period of the model. The model also explains the important cyclical features of the U.S. labor market.
|Item Type:||MPRA Paper|
|Original Title:||Explaining the Joint Behavior of Employment, Unemployment and Nonparticipation|
|Keywords:||Search and Matching, Business Cycles, Unemployment, Labor Force Participation|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J64 - Unemployment: Models, Duration, Incidence, and Job Search
|Depositing User:||Weh-Sol Moon|
|Date Deposited:||19. Sep 2008 10:55|
|Last Modified:||11. Feb 2013 21:59|
Abraham, Katherine G. and Robert Shimer. “Changes in Unemployment Duration and Labor Force Attachment.” in Alan Krueger and Robert Solow, eds., The Roaring Nineties. New York: Russell Sage Foundation, 2002, pp. 367-420.
Abowd, John M. and Arnold Zellner. “Estimating Gross Labor-Force Flows.” Journal of Business & Economic Statistics, July 1985, 3(3), pp. 254-283.
Andolfatto, David. “Business Cycles and Labor-Market Search.” American Economic Review, March 1996, 86(1), pp. 112-132.
Cole, Harold L. and Richard Rogerson. “Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?” International Economic Review, November 1999, 40(4), pp. 933-959.
Garibaldi, Pietro and Etienne Wasmer. “Equilibrium Search Unemployment, Endogenous Participation and Labor Market Flows.” Journal of the European Economics Association, June 2005, 3(4), pp. 851-882.
Hall, Robert E. “Employment Fluctuations with Equilibrium Wage Stickiness.” American Economic Review, March 2005, 95(1), pp. 50-65.
Haefke, Christian and Michael Reiter. “Endogenous Labor Market Participatioin and the Business Cycle.” Working paper, Universitat Pompeu Fabra, March 2006.
Kim, Sun-Bin. “Unemployment Insurance Policy with endogenous Labor Force Participation.” Working paper, Concordia University, August 2004.
Lucas, Robert E. and Edward C. Prescott. “Equilibrium Search and Unemployment.” Journal of Economic Theory, February 1974, 7(2), pp. 188-209.
Moon, Weh-Sol. Individual Labor Market Transitions and Aggregate Dynamics. Ph.D. Dissertation, University of Rochester, 2007.
Mortensen, Dale and Christopher A. Pissarides. “Job Creation and Job Destruction in the Theory of Unemployment.” Review of Economic Studies, July 1994, 61(3), pp. 397-415.
Petrongolo, Barbara and Christopher A. Pissarides. “Looking into the Black Box: A Survey of the Matching Function.” Journal of Economic Literature, June 2001, 39(2), pp. 390-431.
Pries, Michael and Richard Rogerson. “Search Frictions and Labor Market Participation.” Working paper, University of Maryland, November 2004.
Shimer, Robert. “The Cyclical Behavior of Equilibrium Unemployment and Vacancies.” American Economic Review, March 2005, 95(1), pp. 25-49.
Tripier, Fabien. “Can the Labor Market Search Model Explain the Fluctuations of Allocations of Time.” Economic Modelling, January 2004, 21(1), pp. 131-146.
Veracierto, Marcelo. “On the Cyclical Behavior of Employment, Unemployment, and Labor Force Participation.” Working paper, Federal Reserve Bank of Chicago, March 2004.