A three state model of worker flows in general equilibrium

Per Krusell, Toshihiko Mukoyama, Richard Rogerson, Ayşegül Şahin

Research output: Contribution to journalArticlepeer-review

39 Scopus citations

Abstract

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 and idiosyncratic productivity 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.

Original languageEnglish (US)
Pages (from-to)1107-1133
Number of pages27
JournalJournal of Economic Theory
Volume146
Issue number3
DOIs
StatePublished - May 2011
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Labor market frictions
  • Labor supply

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