Working Paper: NBER ID: w19678
Authors: Gabriel Chodorow-Reich; Loukas Karabarbounis
Abstract: The flow opportunity cost of moving from unemployment to employment consists of foregone public benefits and the foregone value of non-working time in units of consumption. We construct a time series of the opportunity cost of employment using detailed microdata and administrative or national accounts data to estimate benefit levels, eligibility and take-up of benefits, consumption by labor force status, hours per worker, taxes, and preference parameters. Our estimated opportunity cost is procyclical and volatile over the business cycle. The estimated cyclicality implies far less unemployment volatility in many leading models of the labor market than that observed in the data, irrespective of the level of the opportunity cost.
Keywords: Opportunity cost of employment; Cyclicality; Labor market fluctuations; Unemployment volatility
JEL Codes: E24; E32; J22; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| opportunity cost of employment (z) (J39) | labor market outcomes (J48) |
| opportunity cost of employment (z) (J39) | economic expansions (E32) |
| opportunity cost of employment (z) (J39) | recessions (E32) |
| fluctuations in opportunity cost of employment (z) (J69) | foregone value of nonworking time (J17) |
| opportunity cost of employment (z) (J39) | employment levels (J23) |
| opportunity cost of employment (z) (J39) | marginal product of employment (J60) |
| cyclical behavior of opportunity cost of employment (z) (E32) | labor market dynamics (J29) |