Aggregate Labor Market Outcomes: The Role of Choice and Chance

40 Pages Posted: 18 Aug 2009 Last revised: 5 Sep 2010

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

Multiple version iconThere are 2 versions of this paper

Date Written: August 2009

Abstract

Commonly used frictional models of the labor market imply that changes in frictions have large effects on steady state employment and unemployment. We use a model that features both frictions and an operative labor supply margin to examine the robustness of this feature to the inclusion of a empirically reasonable labor supply channel. The response of unemployment to changes in frictions is similar in both models. But the labor supply response present in our model greatly attenuates the effects of frictions on steady state employment relative to the simplest matching model, and two common extensions. We also find that the presence of empirically plausible frictions has virtually no impact on the response of aggregate employment to taxes.

Suggested Citation

Krusell, Per L. and Mukoyama, Toshihiko and Rogerson, Richard and Sahin, Aysegul, Aggregate Labor Market Outcomes: The Role of Choice and Chance (August 2009). NBER Working Paper No. w15252, Available at SSRN: https://ssrn.com/abstract=1454985

Per L. Krusell

Princeton University - Department of Economics ( email )

111 Fisher Hall
Princeton, NJ
United States
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HOME PAGE: http://rincewind.iies.su.se/%7Ekrusell/

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

Stockholm, SE-10691
Sweden
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+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

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