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, Revised in August 2015
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 benefit levels, eligibility and take-up of benefits, consumption by labor force status, hours per worker, taxes, and preference parameters. Our estimated opportunity cost is procyclical and volatile over the business cycle. The estimated cyclicality implies far less unemployment volatility in many leading models of the labor market than that observed in the data, irrespective of the level of the opportunity cost.

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Document Object Identifier (DOI): 10.3386/w19678

Published: Gabriel Chodorow-Reich & Loukas Karabarbounis, 2016. "The Cyclicality of the Opportunity Cost of Employment," Journal of Political Economy, University of Chicago Press, vol. 124(6), pages 1563-1618. citation courtesy of

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