Search Frictions and the Labor Wedge
May 1, 2011
Download PDF
More Formats on IMF eLibrary
Order a Print CopyDisclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
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.
Subject: Business cycles, Economic growth, Employment, Labor, Labor market frictions, Labor markets
Keywords: accounting literature, business cycle, Business Cycle Accounting, business cycle frequency, Business cycles, Employment, employment fluctuation, Frisch elasticity, labor demand and supply equation, labor market, Labor market frictions, Labor Market Search, Labor markets, Labor Wedge, prototype business cycle model, prototype model, RBC model, utility function, wedge equation, WP
Pages:
29
Volume:
2011
DOI:
Issue:
117
Series:
Working Paper No. 2011/117
Stock No:
WPIEA2011117
ISBN:
9781455262403
ISSN:
1018-5941
