Aggregate Implications of Indivisible Labor, Incomplete Markets, and Labor Market Frictions

43 Pages Posted: 19 Mar 2008 Last revised: 4 Apr 2008

See all articles by Per Krusell

Per Krusell

Princeton University - Department of Economics; Stockholm University - Institute for International Economic Studies (IIES); Centre for Economic Policy Research (CEPR)

Toshihiko Mukoyama

Georgetown University - Department of Economics; CIREQ

Richard Rogerson

Arizona State University (ASU) - Economics Department; National Bureau of Economic Research (NBER); Princeton University - Woodrow Wilson School of Public and International Affairs

Aysegul Sahin

Federal Reserve Bank of New York

Date Written: March 2008

Abstract

This paper analyzes a model that features frictions, an operative labor supply margin, and incomplete markets. We first provide analytic solutions to a benchmark model that includes indivisible labor and incomplete markets in the absence of trading frictions. We show that the steady state levels of aggregate hours and aggregate capital stock are identical to those obtained in the economy with employment lotteries, while individual employment and asset dynamics can be different. Second, we introduce labor market frictions to the benchmark model. We find that the effect of the frictions on the response of aggregate hours to a permanent tax change is highly non-linear. We also find that there is considerable scope for substitution between "voluntary" and "frictional" nonemployment in some situations.

Suggested Citation

Krusell, Per L. and Mukoyama, Toshihiko and Rogerson, Richard and Sahin, Aysegul, Aggregate Implications of Indivisible Labor, Incomplete Markets, and Labor Market Frictions (March 2008). NBER Working Paper No. w13871, Available at SSRN: https://ssrn.com/abstract=1106597

Per L. Krusell

Princeton University - Department of Economics ( email )

111 Fisher Hall
Princeton, NJ
United States
609-258-4003 (Phone)
609-258-6419 (Fax)

HOME PAGE: http://rincewind.iies.su.se/%7Ekrusell/

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden
+46 0 8 16 30 73 (Phone)
+46 0 8 16 41 77 (Fax)

HOME PAGE: http://rincewind.iies.su.se/%7Ekrusell/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Toshihiko Mukoyama

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States

CIREQ

C.P. 6128, Succursale Centre-ville
Montreal, Quebec H3C 3J7
Canada

Richard Rogerson (Contact Author)

Arizona State University (ASU) - Economics Department ( email )

Tempe, AZ 85287-3806
United States
480-727-6671 (Phone)
602-965-0748 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

Aysegul Sahin

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
26
Abstract Views
602
PlumX Metrics