NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Cyclicality of the Opportunity Cost of Employment

Gabriel Chodorow-Reich, Loukas Karabarbounis

NBER Working Paper No. 19678
Issued in November 2013
NBER Program(s):   EFG   LS

The flow opportunity cost of moving from unemployment to employment consists of foregone public benefits and the foregone value of non-working time in units of consumption. We construct a time series of the opportunity cost of employment using detailed microdata and administrative or national accounts data to estimate benefits, consumption by employment status, and preference parameters. Our estimated opportunity cost is procyclical and volatile over the business cycle. The estimated cyclicality implies far less unemployment volatility in search and matching models of the labor market than that observed in the data. This result holds irrespective of the level of the opportunity cost or whether wages are set by Nash bargaining or by an alternating-offer bargaining process. We conclude that appealing to aspects of labor supply does not help search and matching models explain aggregate employment fluctuations.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

This paper was revised on June 16, 2014

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19678

Users who downloaded this paper also downloaded these:
Calvo, Coricelli, and Ottonello w19683 Jobless Recoveries During Financial Crises: Is Inflation the Way Out?
Hall w19871 High Discounts and High Unemployment
Neumark, Salas, and Wascher w18681 Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?
Zinman w19682 Consumer Credit: Too Much or Too Little (or Just Right)?
Leeper and Zhou w19686 Inflation's Role in Optimal Monetary-Fiscal Policy
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

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

Contact Us