On the Cyclical Behavior of Employment, Unemployment and Labor Force Participation
47 Pages Posted: 22 Apr 2003
Date Written: November 2002
In this paper I evaluate to what extent a real business cycle (RBC) model that incorporates search and leisure decisions can simultaneously account for the observed behavior of employment, unemployment and out-of-the-labor-force. This contrasts with the previous RBC literature, which analyzed employment or hours fluctuations by either lumping together unemployment and out-of-the-labor-force into a single non-employment state or assuming a fixed labor force participation. Once the three employment states are explicitly introduced I find that the RBC model generates highly counterfactual labor market dynamics.
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