Krusell, Per. <br/><br/>
Aggregate Implications of Indivisible Labor, Incomplete Markets, and Labor Market Frictions / 
Per Krusell, Toshihiko Mukoyama, Richard Rogerson, Aysegul Sahin. 
 - Cambridge, Mass.  National Bureau of Economic Research  2008. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w13871 .
 - Working Paper Series (National Bureau of Economic Research)  no. w13871. .
<br/><br/> March 2008. 
<br/><br/> This paper analyzes a model that features frictions, an operative labor supply margin, and incomplete markets. We first provide analytic solutions to a benchmark model that includes indivisible labor and incomplete markets in the absence of trading frictions. We show that the steady state levels of aggregate hours and aggregate capital stock are identical to those obtained in the economy with employment lotteries, while individual employment and asset dynamics can be different. Second, we introduce labor market frictions to the benchmark model. We find that the effect of the frictions on the response of aggregate hours to a permanent tax change is highly non-linear. We also find that there is considerable scope for substitution between "voluntary" and "frictional" nonemployment in some situations. 
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