A Three State Model of Worker Flows in General Equilibrium
Princeton University - Department of Economics; Stockholm University - Institute for International Economic Studies (IIES); Centre for Economic Policy Research (CEPR)
University of Virginia - Economics; CIREQ
Arizona State University (ASU) - Economics Department; National Bureau of Economic Research (NBER)
Federal Reserve Bank of New York
NBER Working Paper No. w15251
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.
Number of Pages in PDF File: 50working papers series
Date posted: August 18, 2009
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