Working Paper: NBER ID: w26878
Authors: Per Krusell; Toshihiko Mukoyama; Richard Rogerson; Ayegl Ahin
Abstract: We build a three-state general equilibrium model of the aggregate labor market that features both standard labor supply forces and labor market frictions. Our model matches key features of the cyclical properties of employment, unemployment, and nonparticipation as well as those of gross worker flows across these three labor market states. Our key finding is that shocks to labor market frictions play a dominant role in accounting for labor market fluctuations. This is in contrast to the focus of the traditional RBC literature, which emphasized how employment fluctuations arise as a consequence of labor supply responses to price changes induced by TFP shocks.
Keywords: Labor Market Fluctuations; Gross Worker Flows; Labor Market Frictions; General Equilibrium Models
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 |
|---|---|
| shocks to labor market frictions (J69) | fluctuations in employment (J63) |
| shocks to labor market frictions (J69) | fluctuations in unemployment (J64) |
| shocks to labor market frictions (J69) | fluctuations in nonparticipation (J22) |
| TFP shocks (F16) | fluctuations in employment (J63) |
| TFP shocks (F16) | fluctuations in unemployment (J64) |
| TFP shocks (F16) | fluctuations in nonparticipation (J22) |
| shocks to labor market frictions + TFP shocks (J49) | fluctuations in employment (J63) |
| shocks to labor market frictions + TFP shocks (J49) | fluctuations in unemployment (J64) |
| shocks to labor market frictions + TFP shocks (J49) | fluctuations in nonparticipation (J22) |