Paper #950

Títol:

Endogenous labor market participation and the business cycle

Autors:

Christian Haefke i Michael Reiter

Data:

Març 2006

Resum:

Existing models of equilibrium unemployment with endogenous labor market participation are complex, generate procyclical unemployment rates and cannot match unemployment variability relative to GDP. We embed endogenous participation in a simple, tractable job market matching model, show analytically how variations in the participation rate are driven by the cross-sectional density of home productivity near the participation threshold, and how this density translates into an extensive-margin labor supply elasticity. A calibration of the model to macro data not only matches employment and participation variabilities but also generates strongly countercyclical unemployment rates. With some wage rigidity the model also matches unemployment variations well. Furthermore, the labor supply elasticity implied by our calibration is consistent with microeconometric evidence for the US.

Paraules clau:

Matching Models, Labor Market Participation, Labor Supply Elasticity, Time Aggregation

Codis JEL:

E24, E32, J21, J64

Àrea de Recerca:

Macroeconomia i Economia Internacional

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