TY  - JOUR
AU  - Krusell,Per
AU  - Mukoyama,Toshihiko
AU  - Rogerson,Richard
AU  - Sahin,Aysegul
TI  - Aggregate Implications of Indivisible Labor, Incomplete Markets, and Labor Market Frictions
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13871
PY  - 2008
Y2  - March 2008
UR  - http://www.nber.org/papers/w13871
L1  - http://www.nber.org/papers/w13871.pdf
N1  - Author contact info:
Per Krusell
Institute for International Economic Studies
Stockholm University
106 91 STOCKHOLM
SWEDEN
E-Mail: per.krusell@iies.su.se

Toshihiko Mukoyama
Department of Economics
University of Virginia
P.O. Box 400182
Charlottesville VA 22904
E-Mail: toshihiko.mukoyama@frb.gov

Richard Rogerson
Woodrow Wilson School of
Public and International Affairs
323 Bendheim Hall
Princeton University
Princeton, NJ 08544
Tel: 609-258-4839
Fax: 609-258-5349
E-Mail: rdr@princeton.edu

Aysegul Sahin
Federal Reserve Bank of New York
Research & Statistics Group
33 Liberty Street
New York, NY  10045
Tel: 212-720-5145
E-Mail: Aysegul.Sahin@ny.frb.org
AB  - 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.
ER  -