Search Frictions and the Labor Wedge
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
This paper shows that labor market search frictions do not explain fluctuations in the labor wedge per se. However, the introduction of extensive and intensive margin clarifies that measuring the MRS in terms of total hours artificially introduces procyclicality in the MRS. When the MRS is correctly measured in terms of hours per worker, the labor wedge obtained is less variable than the one of the competitive model. Finally, we show that it is possible to measure a strongly procyclical labor wedge when the actual data generating process is a search model that allows for movements in both margins.
Series:
Working Paper No. 2011/117
Subject:
Business cycles Economic growth Employment Labor Labor market frictions Labor markets
English
Publication Date:
May 1, 2011
ISBN/ISSN:
9781455262403/1018-5941
Stock No:
WPIEA2011117
Pages:
29
Please address any questions about this title to publications@imf.org