Is Labor Supply Important for Business Cycles? / Per Krusell, Toshihiko Mukoyama, Richard Rogerson, Ayşegül Şahin.

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Krusell, Per

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w17779.Publication details: Cambridge, Mass. National Bureau of Economic Research 2012.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We build a general equilibrium model that features uninsurable idiosyncratic shocks, search frictions and an operative labor supply choice along the extensive margin. The model is calibrated to match the average levels of gross flows across the three labor market states: employment, unemployment, and non-participation. We use it to study the implications of two kinds of aggregate shocks for the cyclical behavior of labor market aggregates and flows: shocks to search frictions (the rates of job finding and job loss) and shocks to the return on the market activity (any factors affecting aggregate productivity). We find that both kinds of shocks are needed to explain the labor market data, and that an active labor supply channel is key. A model with friction shocks only, calibrated to match unemployment fluctuations, accounts for only a small fraction of employment fluctuations and has counterfactual cyclical predictions for participation.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w17779 (Browse shelf(Opens below))	Not For Loan

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January 2012.

We build a general equilibrium model that features uninsurable idiosyncratic shocks, search frictions and an operative labor supply choice along the extensive margin. The model is calibrated to match the average levels of gross flows across the three labor market states: employment, unemployment, and non-participation. We use it to study the implications of two kinds of aggregate shocks for the cyclical behavior of labor market aggregates and flows: shocks to search frictions (the rates of job finding and job loss) and shocks to the return on the market activity (any factors affecting aggregate productivity). We find that both kinds of shocks are needed to explain the labor market data, and that an active labor supply channel is key. A model with friction shocks only, calibrated to match unemployment fluctuations, accounts for only a small fraction of employment fluctuations and has counterfactual cyclical predictions for participation.