Working Paper: CEPR ID: DP7425
Authors: Per Krusell; Toshihiko Mukoyama; Richard Rogerson; Aysegul Sahin
Abstract: 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.
Keywords: labor market frictions; labor supply; taxes
JEL Codes: E24; J22; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| idiosyncratic productivity shocks (O49) | persistence in employment and non-participation states (J63) |
| idiosyncratic productivity shocks (O49) | transition from employment to non-participation (J63) |
| idiosyncratic productivity shocks (O49) | model performance (C52) |
| shock processes (C69) | worker flows (J69) |
| model assumptions (C51) | discrepancies between model predictions and actual data (C52) |