TY  - JOUR
AU  - Alvarez,Fernando
AU  - Shimer,Robert
TI  - Search and Rest Unemployment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13772
PY  - 2008
Y2  - February 2008
UR  - http://www.nber.org/papers/w13772
L1  - http://www.nber.org/papers/w13772.pdf
N1  - Author contact info:
Fernando E. Alvarez
University of Chicago
Department of Economics
1126 East 59th Street
Chicago, IL 60637
Tel: 773/702-4412
Fax: 773/702-8490
E-Mail: f-alvarez1@uchicago.edu

Robert Shimer
Department of Economics
University of Chicago
1126 East 59th Street
Chicago, IL 60637
Tel: 773/702-9015
E-Mail: shimer@uchicago.edu
AB  - This paper extends Lucas and Prescott's (1974) search model to develop a notion of rest unemployment.  The economy consists of a continuum of labor markets, each of which produces a heterogeneous good.  There is a constant returns to scale production technology in each labor market, but labor productivity is continually hit by idiosyncratic shocks, inducing the costly reallocation of workers across labor markets.  Under some conditions, some workers may be rest-unemployed, waiting for local labor market conditions to improve, rather than engaged in time consuming search.  The model has distinct notions of unemployment (moving to a new labor market or waiting for labor market conditions to improve) and inactivity (enjoying leisure while disconnected from the labor market).  We obtain closed-form expressions for key aggregate variables and use them to evaluate the model. Quantitatively, we find that in the U.S. economy many more people may be in rest unemployment than in search unemployment.
ER  -