NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Labor-Market Matching with Precautionary Savings and Aggregate Fluctuations

Per Krusell, Toshihiko Mukoyama, Aysegul Sahin

NBER Working Paper No. 15282
Issued in August 2009
NBER Program(s):   EFG

We analyze a Bewley-Huggett-Aiyagari incomplete-markets model with labor-market frictions. Consumers are subject to idiosyncratic employment shocks against which they cannot insure directly. The labor market has a Diamond-Mortensen-Pissarides structure: firms enter by posting vacancies and match with workers bilaterally, with match probabilities given by an aggregate matching function. Wages are determined through Nash bargaining. We also consider aggregate productivity shocks, and a complete set of contingent claims conditional on this risk.

We use the model to evaluate a tax-financed unemployment insurance scheme. Higher insurance is beneficial for consumption smoothing, but because it raises workers' outside option value, it discourages firm entry. We find that the latter effect is more potent for welfare outcomes; we tabulate the effects quantitatively for different kinds of consumers. We also demonstrate that productivity changes in the model---in steady state as well as stochastic ones---generate rather limited unemployment effects, unless workers are close to indifferent between working and not working; thus, recent findings are corroborated in our more general setting.

download in pdf format
   (497 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15282

Published: PER KRUSELL & TOSHIHIKO MUKOYAMA & AYŞEGÜL ŞAHIN, 2010. "Labour-Market Matching with Precautionary Savings and Aggregate Fluctuations," Review of Economic Studies, Blackwell Publishing, vol. 77(4), pages 1477-1507, October. citation courtesy of

Users who downloaded this paper also downloaded* these:
Krusell, Mukoyama, Rogerson, and Şahin w13871 Aggregate Implications of Indivisible Labor, Incomplete Markets, and Labor Market Frictions
Krusell, Mukoyama, Rogerson, and Şahin w15251 A Three State Model of Worker Flows in General Equilibrium
Krusell, Mukoyama, Rogerson, and Şahin w15252 Aggregate Labor Market Outcomes: The Role of Choice and Chance
Krusell, Mukoyama, Rogerson, and Şahin w17779 Is Labor Supply Important for Business Cycles?
Rogerson and Shimer w15901 Search in Macroeconomic Models of the Labor Market
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us