Moon, Weh-Sol (2009): Endogenous Labor Force Participation and Firing Costs.
Download (251kB) | Preview
I construct a matching model to explain the labor market transition between employment, unemployment and nonparticipation, and evaluate the quantitative effects of firing costs. The model has several features that are distinguished from previous studies: endogenous labor force participation, different job-search decisions and imperfect insurance markets. I find that the model is able to account for the U.S. labor market, especially the gross labor-force transition rates. I also find that firing costs as a type of firing tax have a negative effect on the layoff rate, the job-finding probability and the participation rate. In particular, the effect of a decrease in the job-finding probability is greater than the effect of a decrease in the layoff rate, and this results in an increase in the unemployment-to-population ratio. Finally, firing costs make individuals' job tenures longer and skew the asset distribution to the right.
|Item Type:||MPRA Paper|
|Original Title:||Endogenous Labor Force Participation and Firing Costs|
|Keywords:||Search and Matching; Labor Force Participation; Firing Costs|
|Subjects:||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 > J2 - Demand and Supply of Labor > J21 - Labor Force and Employment, Size, and Structure
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J65 - Unemployment Insurance; Severance Pay; Plant Closings
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:||16. Jun 2009 07:24|
|Last Modified:||19. Feb 2013 10:06|
Alvarez, Fernando and Marcelo Veracierto. "Severance Payments in an Economy with Frictions." Journal of Monetary Economics, June 2001, 47(3), pp. 477-498.
Andolfatto, David. "Business Cycles and Labor-Market Search." American Economic Review, March 1996, 86(1), pp. 112-132.
Bentolila, Samuel and Giuseppe Bertola. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?" Review of Economic Studies, July 1990, 57(3), pp. 381-401.
Bertola, Giuseppe. "Job Security, Employment and Wages." European Economic Review, June 1990, 34(4), pp. 851-879.
Bils, Mark, Yongsung Chang and Sun-Bin Kim. "Comparative Advantage in Cyclical Unemployment." NBER Working Paper 13231, July 2007.
den Haan, Wouter J., Garey Ramey and Joel Watson. "Job Destruction and Propagation of Shocks." American Economic Review, June 2000, 90(3), pp. 482-498.
Garibaldi, Pietro and Etienne Wasmer. "Equilibrium Search Unemployment, Endogenous Participation, and Labor Market Flows." Journal of the European Economic Association, June 2005, Vol 3(2), pp. 851-882.
Hagedorn, Marcus and Iourii Manovskii. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited." American Economic Review, September 2008, 98(4), pp. 1692-1706.
Haefke, Christian and Michael Reiter. "Endogenous Labor Market Participation and the Business Cycle." Working paper, Universitat Pompeu Fabra, March 2006.
Hopenhayn, Hugo and Richard Rogerson. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis." Journal of Political Economy, 1993, 101(5), pp. 915-938.
Krusell, Per, Toshihiko Mukoyama, Richard Rogerson and Aysegul Sahin. "Labor Supply in a Frictional Labor Market." Memo, 2008.
Ljungqvist, Lars. "How Do Lay-off Costs Affect Employment?" Economic Journal, October 2002, 112, pp. 829-853.
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. Essays on 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.
Pries, Michael and Richard Rogerson. "Search Frictions and Labor Market Participation." European Economic Review, forthcoming, 2008.
Veracierto, Marcelo. "On the Short-Run Effects of Labor Market Reforms." Journal of Monetary Economics, May 2007, 54(4), pp. 1213-1229.
Available Versions of this Item
- Endogenous Labor Force Participation and Firing Costs. (deposited 16. Jun 2009 07:24) [Currently Displayed]