Search frictions and labor market participation

Michael Pries, Richard Rogerson

Research output: Contribution to journalArticlepeer-review

21 Scopus citations

Abstract

Cross-country differences in labor market participation are often larger than differences in unemployment rates. The same holds true across demographic groups within a given economy. We argue that the interaction between labor force participation decisions and labor market frictions can help us understand these patterns. This interaction highlights dynamic aspects of the participation decision, in contrast to standard textbook treatments that emphasize static costs and benefits of participation. We extend the standard labor market search problem to allow for a third state-non-participation-and assumes that stochastic participation costs precipitate flows into and out of non-participation. We fully characterize the worker's decision problem and use numerical simulations to demonstrate how participation patterns vary with individual characteristics and with labor market conditions.

Original languageEnglish (US)
Pages (from-to)568-587
Number of pages20
JournalEuropean Economic Review
Volume53
Issue number5
DOIs
StatePublished - Jul 2009
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • Labor market participation
  • Labor market search

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