Search in the Labor Market under Imperfectly Insurable Income Risk
September 1, 2009
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Summary
This paper develops a general equilibrium model with unemployment and noncooperative wage determination to analyze the importance of incomplete markets when risk-averse agents are subject to idiosyncratic employment shocks. A version of the model calibrated to the U.S. shows that market incompleteness affects individual behavior and aggregate conditions: it reduces wages and unemployment but increases vacancies. Additionally, the model explains the average level of unemployment insurance observed in the U.S. A key mechanism is the joint influence of imperfect insurance and risk aversion in the wage bargaining. The paper also proposes a novel solution to solve this heterogeneous-agent model.
Subject: Consumption, Insurance, Labor markets, Unemployment, Wages
Keywords: labor market, replacement ratio, unemployment insurance, WP
Pages:
37
Volume:
2009
DOI:
Issue:
188
Series:
Working Paper No. 2009/188
Stock No:
WPIEA2009188
ISBN:
9781451873351
ISSN:
1018-5941
