The Cyclicality of the Opportunity Cost of Employment

62 Pages Posted: 28 Nov 2013

See all articles by Gabriel Chodorow-Reich

Gabriel Chodorow-Reich

Harvard University Department of Economics

Loukas Karabarbounis

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: November 2013

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.

Suggested Citation

Chodorow-Reich, Gabriel and Karabarbounis, Loukas, The Cyclicality of the Opportunity Cost of Employment (November 2013). NBER Working Paper No. w19678. Available at SSRN: https://ssrn.com/abstract=2360946

Gabriel Chodorow-Reich (Contact Author)

Harvard University Department of Economics ( email )

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HOME PAGE: http://scholar.harvard.edu/chodorow-reich

Loukas Karabarbounis

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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