DP7425 A Three State Model of Worker Flows in General Equilibrium
|Author(s):||Per Krusell, Toshihiko Mukoyama, Richard Rogerson, Aysegul Sahin|
|Publication Date:||August 2009|
|Keyword(s):||Labor Market Frictions, Labor Supply, Taxes|
|JEL(s):||E24, J22, J64|
|Programme Areas:||International Macroeconomics, Labour Economics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7425|
We develop a simple model featuring search frictions and a nondegenerate labor supply decision along the extensive margin. The model is a standard version of the neoclassical growth model with indivisible labor with idiosyncratic shocks and frictions characterized by employment loss and employment opportunity arrival shocks. We argue that it is able to account for the key features of observed labor market flows for reasonable parameter values. Persistent idiosyncratic productivity shocks play a key role in allowing the model to match the persistence of the employment and out of the labor force states found in individual labor market histories.